Today's surprising news that Oracle (NASDAQ: ORCL) will acquire Sun Microsystems (NASDAQ: JAVA) means that the data storage industry suddenly has a new and formidable player.
"Our customers have been asking us to step up to a broader role to reduce complexity, risk and cost by delivering a highly-optimized standards-based product stack," Oracle president Charles Phillips wrote in a letter to partners and customers. "Oracle plans to deliver these benefits by offering a broad range of products, including servers and storage, with all the integrated pieces: hardware operating system, database, middleware and applications."
The deal is much more likely to clear antitrust hurdles than Sun's proposed merger with IBM (NYSE: IBM), which fell apart two weeks ago.
But Wedbush Morgan analyst Kaushik Roy doesn't necessarily think that's a good thing.
"IBM was a better strategic fit for Sun," he said. "Now Oracle is getting into totally new markets in which they have no expertise or history. I am skeptical.
"Oracle is more likely to hold on to the entire storage business," Roy added. "Sun bought StorageTek and destroyed the company because of poor execution. But Oracle has been much better in execution, and it is very likely that the current storage group within Sun will have a better opportunity to grow."
But the deal could also mean a rocky relationship between Oracle and other storage players, like EMC (NYSE: EMC). "Oracle and EMC had a very good relationship," said Roy. "But now with Oracle and Sun selling HDS at the high end, it would compete with EMC. We will wait to see how those relationships pan out."
While Oracle could eventually wind up selling Sun's storage hardware business, most analysts see Oracle staying in the hardware business at least for now.
"Right now I'm going on the assumption that Oracle runs Sun as Sun for a while before they start restructuring," said Illuminata analyst John Webster. "On the call this morning, [Oracle CEO] Larry Ellison mentioned Sun's strong position in storage, including archival storage, so I assume that everything even tape stays put."
Webster said the deal could renew speculation that Cisco (NASDAQ: CSCO) might acquire EMC, as Cisco will offer networking and servers but not storage and virtualization, which is offered by EMC subsidiary VMware (NYSE: VMW). And he said Brocade (NASDAQ: BRCD), Cisco's competitor in storage and network switches, could become a takeover target for Oracle or IBM (NYSE: IBM).
Stifel Nicolaus analyst Aaron Rakers said the Oracle-Sun deal could also renew takeover speculation about NetApp, and he also wondered about Pillar Data Systems, the storage company funded by Ellison.
Rakers also noted that Sun's Open Storage efforts are another question mark in the deal; they've been a rare bright spot for the company in recent quarters.
"We have often been intrigued by some of Sun's storage technologies," Rakers wrote in a research note today. "However, we have continued to see limited traction from an execution standpoint."
Enterprise Strategy Group analyst Brian Babineau said data storage "had very little to do with this deal," which he said was about Solaris, Java and MySQL. But given the amount of data stored in Oracle databases, storage vendors have reason to worry about potential competition from Oracle, he said. Up until now, Oracle has approached the storage industry as a partner, in offerings such as the HP Oracle Database Machine.
If nothing else, Babineau said the presence of Oracle could enliven the storage market. The "hasty call with no Q&A" that followed the acquisition announcement suggests just how quickly the deal got done and just how aggressively Oracle is capable of moving.
"If you're NetApp, EMC or 3PAR, this is not a warm and fuzzy feeling," he said.
Oracle officials expect the deal to close this summer.
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