Oracle and Sun: What does the IT industry think?

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Following the announcement yesterday that Oracle has bought Sun for $7.4 billion, members of the IT industry have been leaping in to make their voices heard.

In response to the assessment made by Oracle president Safra Catz during the announcement yesterday - estimating an increase of $15 cents per share during the first year - David Mitchell, senior vice president of IT Research at Ovum, believes the company’s experience will see them through.

He said: “This is a bold estimate and a clear indication that Oracle sees that it will be able to generate substantial synergies, in the same way that it has with its other acquisitions. In the current market it is difficult for most companies to see beyond the next quarter, never mind a full year.”

He also believes Sun is now in line with IBM, HP and Microsoft as “the big four” who will dominate and shape the IT industry.

However, other analysts have taken this experience Oracle and picked up on a less positive trend.

PC Pro has quoted a Wall Street analyst who suggested that the move will end up with 10,000 employees losing their jobs.

Toni Sacconaghi, senior analyst with Sanford C. Bernstein & Co, said in a research note: "To deliver $1.5 billion in operating profit, Oracle would need to boost profits by $700 million, assuming no material revenue erosion, which suggests incremental headcount reductions of 5,500 to 10,000 depending on timing.”

He also referenced Oracle’s previous form in acquiring companies and cutting jobs as contributing to his analysis. After acquiring PeopleSoft in 2005, 5,000 jobs were lost followed by 2,000 jobs when it purchased Seibel in 2006.

There may be a bleak outlook for some of the company’s employee,s but Dr Stefan Ried, senior analyst at Forrester Research, sees this as a positive move for the company.

He said: “The market momentum is definitely consolidation. The Sun - IBM bit was clearly a consolidation within the hardware market. As this failed… Oracle will be able to turn the Sun deal into a best practice of the packaged apps / hardware combination and be a serious threat to IBM.”

“The impact to Oracle’s Application business is still open. It’s basically the first time that a major ERP applications vendor acquires a hardware vendor since the split of applications and software back in the early days of the foundation of SAP and Oracle.”

The chief executive for Ingres, provider of open source information management services, has a more pessimistic view of the move. Roger Burkhardt thinks Oracle has not thought this through.

He said: “We are witnessing the beginning of the end of the whole 1980s proprietary IT era as the New Economics of IT takes over and customers switch out of extraordinarily high-cost hardware and software and migrate to open source and open standards. Oracle may be billing this merger as the beginning of the ‘next phase of computing’, but they are missing the point.”

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