Although IBM appears to have called off talks to acquire Sun, a review of various paths that are available to IBM indicates that there are significant advantages for it to continue its pursuit and re-negotiate. The decisions that IBM makes next will depend on how it tackles some tough strategic questions. For example, how willing is IBM to fully pursue market opportunities with its industry-standard x86 hardware, instead of favoring its own System z and Power Systems platforms for the most lucrative high-end opportunities? How committed is IBM to delivering an end-to-end software platform hosted on multi-vendor hardware, rather than concentrating on its own tightly-integrated hardware stack?
The choices that IBM makes now will be steered by many internal and external forces, some of which are orthogonal or opposed. Depending on which forces prevail over others, their effect will fundamentally influence IBM’s decision whether to continue pursuing Sun or not, and how to integrate Sun’s systems technology if it does succeed with the acquisition. If IBM ultimately succeeds in acquiring Sun, and takes on the burden of consolidating seemingly incompatible platform hardware and competing software, it will benefit from an unprecedented range of virtualization tools for helping customers migrate between hardware platforms with the least possible disruption. If IBM does not acquire Sun in the end, it will face renewed challenges to develop a software stack that can both help secure the profits of its proprietary systems, and extend them to the increasingly critical x86 server market.
IDEAS has developed a few scenarios for how IBM might evolve its systems strategy with or without Sun. After analyzing these scenarios, it appears likely that IBM will proceed with the acquisition. Whether future negotiations will reach a price (and terms/conditions) that each side can agree to is not something we can predict. However, assuming such business obstacles can be overcome, the result will be that IBM adopts Sun's Solaris operating system on its own processors for business critical workloads, while promoting the open source version of Solaris, OpenSolaris, on x86 to build a community. If the majority of the market eventually accepts x86 systems for the most critical workloads, Solaris on x86 will provide IBM with a crucial foothold. Once IBM has fully exploited all possible opportunities for vertical integration with System z and Power Systems, it can fully shift its strategic focus to x86 and deliver a version of Solaris optimized specifically for its System x servers. Until then, Solaris and Sun's users will help to strengthen IBM's most profitable systems based on its own processors.
For more detail on these scenarios, download the complete analysis: The Mating Ritual of IBM and Sun: Some Outcome Scenarios (free registration required)
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