Sun Microsystems’ mere suggestion that it could buy Novell
is raising more than red flags in the IT
industry.
In an interview with the Wall Street Journal this weekend,
outspoken Sun COO Jonathan Schwartz said the company was wondering what to do with its
$7.61 billion cash in the bank.
“With our balance sheet, we’re considering all our options,” he said when
asked about purchasing Novell.
But Schwartz followed it up with a statement that begs the argument of
why Sun would spend upwards of $2.64 billion for the owner of enterprise Linux
distribution SUSE.
“What would owning the operating system on which IBM is dependent be
worth? History would suggest we look to Microsoft for comparisons,” Schwartz
said.
Michael Dortch, principal business analyst with Robert Frances Group,
suggests enterprise IT executives might have several questions regarding a
Sun acquisition of Novell.
“Would Scott McNealy and Jack Messman actually try to run the resulting
company together? Would key developers from either Novell or Sun stick
around, or leave? What would be the ultimate effects on current and
anticipated offerings, from Novell and from Sun?” Dortch asked.
This is where the fur starts to fly. In his latest corporate weblog, Schwartz was
hypercritical of IBM , noting that Big Blue is having
problems with its Linux strategy because Red Hat is raising its prices and adding an application server that
competes with WebSphere.
“IBM’s finding itself in the uncomfortable position
of having lost control of the social movement they were hoping to monetize,” Schwartz writes on his weblog.
“Red Hat’s dominance leaves IBM almost entirely dependent upon
SUSE/Novell,” he continues. “Whoever owns Novell controls the
OS on which IBM’s future depends. Now that’s an interesting thought, isn’t
it? But if IBM preemptively acquires Novell/SUSE, the world changes: Linux
enters the product portfolio of a patent litigator not known for being a
social-movement company. But where else will IBM go? With its current market
cap, Red Hat seems un-acquirable — but absent action, IBM’s core customers
will be eroded by Red Hat’s leverage. And Sun’s ability to leverage our open
Solaris platform (on industry standard AMD, Intel or SPARC), or Java
Enterprise System, even on IBM’s hardware, gives us a significant — and
sustainable — competitive advantage.”
Representatives with IBM and Novell declined to comment for this article,
citing refusal to make statements based on rumors. A Sun spokesperson would
not expand beyond Schwartz’s comments.
Yankee Group Senior Analyst Dana Gardner told
internetnews.com relationships between IBM and Red Hat couldn’t be
better and Sun’s COO is up to more mischief than market positioning.
“For Schwartz to talk about an acquisition potential is very unusual,” Gardner said. “If
Sun were truly interested, they wouldn’t say anything, because it jacks up
the price of whatever company they are going to buy. More
likely it is trying to show weakness for IBM on the opening day of the
LinuxWorld conference.”
Beyond the hype, Gardner also points out that Sun has very little to gain
from Novell. The two companies have overlapping customer accounts and
product line-ups, such as their directory system (NDS vs. LDAP), network
operating systems (Solaris vs. NetWare), as well as messaging and portal
products. If anything, Gardner suggests Sun’s only interest in buying Novell
or SUSE would be taking something off the market.
But does IBM need to purchase Novell and/or SUSE to keep its Linux edge?
Again no comment from IBM execs, but RedMonk Senior Analyst Stephen O’Grady
suggests there is a very clear logical progression here from Schwartz’
perspective.
“His contention seems to be A. IBM needs to buy Novell to gain some
measure of
platform control it has ceded by relying on third-party OS’s; B. IBM would
face a customer and community backlash if it did so; and thus C. Sun, by
acquiring Novell, would not only gain a very nice complementary product line,
but damage IBM in the process. Not a bad day’s work,” O’Grady told
internetnews.com.
Dortch also considered the fact that IT executives at the enterprise level who are reliant upon
IBM Linux or open source offerings or initiatives would likely have
questions as well.
“Given that IBM has apparently thrown its lot in with SUSE and not Linux
market leader Red Hat, will IBM change its mind if SUSE offerings becomes
Sun offerings?” O’Grady asked. “How will this affect enterprise deployments —
and the enterprise adoption rates for Linux and other open source
solutions?”
But in the end, either company deciding to purchase Novell would meet harsh criticism and scrutiny.
“IBM, if faced with the proposition of Sun acquiring Novell, would do
everything in its power to prevent this from occurring,” O’Grady said. “And
as far as the community is concerned, I think the reaction would be, if
anything positive, although [Schwartz’s] point about customers is well taken. They
would likely be very wary of such a deal.”
Sun’s shareholders would also be likely to balk at spending so much for
Novell or SUSE. Many remember Sun’s $2 billion purchase for Cobalt back in
September 2000, which did not turn out the way that Sun had hoped.
