Defections Batter Sun Microsystems

Defections are a common occurrence during an acquisition as people get nervous about the future, even when promises are made. Despite assurances from Oracle chief Larry Ellison that his firm would retain Sun Microsystems’ hardware business once the $7.4 billion merger closes, and his promise at JavaOne to fully support Java, Sun is still taking hits.

This week, Sun (NASDAQ: JAVA) lost the JRuby crew, the three developers who created a Java-based version of Ruby who joined the company just three years ago. The three developers, led by Charles Nutter, decided to move to Engine Yard, a San Francisco company that specializes in business applications built on Rails, a Ruby-based application framework.

“To be honest, we had no evidence that Oracle wouldn’t support JRuby, but we also didn’t have any evidence that they would. Two out of the three developers making this move have families. We want to make sure JRuby will get to the next level, and we had to make a decision,” Nutter told Computerworld. He’s since come down with an illness and was unavailable for an interview, but did confirm the same sentiment to InternetNews.com.

Nutter didn’t bring up the acquisition in his first blog post at Engine Yard. Instead, he simply said why they chose to jump from a multi-billion dollar firm to a venture-funded start-up.

“They’ve literally written the book on how to make Rails deploy and scale easily, and if you have a tough Rails infrastructure issue, they’re the company you talk to,” he wrote.

Talent defections are common in acquisitions. Losing the JRuby crew isn’t quite as bad as losing James Gosling, the creator of Java. He remains firmly with Sun but his departure would be devastating if it did happen. That said, Oracle (NASDAQ: ORCL) has a challenge on its hands.

“It’d be in their best interests to make offers to get people to stay on board, perhaps sweeten the deal to stay, because that’s really where the value is,” said Josh Farina, analyst with Technology Business Research.

“Oracle is really good at making companies run better, but ultimately it needs the talent to stay, because you still got a lot of people who love the Sun technology and it’s in the line employees who make it happen.”

IBM smells blood

It’s not getting better on the hardware side of the business, either. In what was widely assumed to be its final quarter before the close of the acquisition, Sun’s sales were down almost one-third from the previous quarter and 40 percent from the prior year.

One reason is that IBM (NYSE: IBM) is really putting a hurt on Sun right now, doing everything it can to grab customers away. Ironically, IBM says Oracle’s acquisition is helping win over customers.

“The announcement of the acquisition was the domino that tipped all other dominos. People were calling us asking for help [migrating],” said Scott Handy, vice president of marketing, strategy and sales support for IBM Power Systems.

“They are all quite concerned. When Oracle bought Siebel and PeopleSoft, they increased the maintenance licenses by 25 percent per year. With BEA, licenses went up 45 percent. So they are looking at OPEX going up just to keep what they had,” he said.

A Sun spokesperson told InternetNews.com the company had no comment.

Next page: IBM cranks up Migration Factory

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IBM has a program called the Migration Factory, an effort begun three years ago following the 2003 acquisition of Sector 7, a company that specialized in migrations, be it hardware, operating system or applications.

The Migration Factory has done about 1,800 migrations, around 125 per quarter steadily for three years, generating a half billion a year in revenue. About 40 percent of those migrations were from HP and 40 percent were from Sun. Starting last year when Sun began to crumble, that number began tilting against Sun.

IBM launched the Power Rewards Program, which offers between $1,000 and $8,000 per core in credit for migrating to IBM hardware. A Sun UltraSparc CMT, with eight cores, means $64,000 in credit per chip to be applied to migration services, a compelling offer.

Since then, IBM is getting all the business it can handle. It has scored 170 Sun customers in the first six months of this year, plus another 66 Sun storage customers. And Handy hasn’t even gone after Sun’s biggest customers that spend $70 to $100 million a year with Sun at this point.

“I think it’s close to implosion at this point,” said Handy. “Ninety percent of the business partners and 70 percent of the ISVs are saying they want to move and work with us… it’s just going to come down.”

It’s not a surprise to Farina, “Everything from Oracle and Larry Ellison has been that they are keeping Sun hardware and the technology roadmaps remains, but that’s still a big question out there,” he told InternetNews.com.

“You want somebody that’s going to be there and there are too many questions around Sun and what’s going to happen.”

IBM has always been willing to be aggressive with its hardware, using it almost as a loss leader to get services and software business, where the real profits lay.

“Sun is down and IBM is taking advantage of the situation to win that business, because the net of it is it’s great to get the hardware business but they are getting the long-term services and software business to go along with it,” said Farina.

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