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What an IBM-Sun deal could mean for India

By BS Reporters in Mumbai/New Delhi
March 19, 2009 09:39 IST

The news of global IT giant IBM buying Sun Microsystems has been doing the rounds for years. So, despite the Wall Street Journal reporting that an approximately $6.5 billion buyout is imminent, analysts remain sceptical.

However, if the deal were to happen, analysts feel IBM and Sun have a lot of overlaps in technology and in product offerings. Hence, it would be an integration challenge.

In the short term, there may be no impact on the 1,200-odd Indian employees of Sun. In the long run, some could get impacted due to platform and technology consolidation. Sun, though, has been cutting staff over the past few quarters.

"IBM will be the clear market leader (if the deal fructifies) in the server market in India, dominated by HP. But there will be conflict of platforms for IBM," said an analyst.

There's a lot of software overlap in databases -- IBM has DB2 and Sun has MySQL.

India is now an important market for Sun Microsystems, both for its products and creating intellectual property (IP). For instance, the number of programmers working on Sun Microsystems' platforms in India is 780,000, retaining the country's position as the leading developer location in the world. This is over half the total developer community in the country.

In fact, the Rs 1,700 crore (Rs 17 billion) Sun India, with around 1,200 employees, has consistently witnessed close to 30 per cent q-o-q growth in the country, according to Dataquest India estimates.

Servers garnered around Rs 800 crore (Rs 8 billion), storage Rs 300 crore (Rs 3 billion), and software and professional services accounted for the rest in FY08. Sun's presence in services is negligible.

An attempt was made to address the anomaly in 2008 with Sun Learning Services, which accounted for Rs 50 crore (Rs 500 million). Its professional services, under Sun Tech Consulting, took off as well.

Sun's India Engineering Centre (IEC), the first in Asia, was set up in Bangalore in 1998. The company has also set up its APAC's first Control Centre in Chennai --  the third such centre globally.

The India R&D centre has also played an important role in creating IP. Of the total 11,000 patents awarded, over 170 are from the Bangalore R&D centre.

However, for engineers at Sun India, this is much more than just an acquisition. "It's about the culture that Sun promotes. Some of the people working at Sun India have never shifted to any other firm," said a source.

Java is Sun's best asset, but the platform was never monetised. IBM could help it do so. Sun also has some interesting ideas on cloud computing, IBM's forte. Finally, Sun can allow IBM to consolidate a data centre rival and bring things back to equilibrium, now that Cisco has entered the market.

Globally, IBM -- which also has a significant presence in India, with over 70,000 employees -- can acquire server and storage share. With Cisco entering the server market, profit margins could be squeezed, especially if the server essentially becomes a storage and networking box, too. By acquiring Sun, IBM could get more scale. The same argument holds for storage hardware.

Sun is a powerhouse in Unix, still a key platform, but isn't exactly making waves. IBM could acquire Sun and establish both Linux and Unix. Sun would enable it to put pressure on HP's Unix-based businesses, too. However, IBM sells AIX Unix servers, while Sun sells Solaris.

There are issues to be worked out on hardware. IBM has refrained from commodity servers and Sun plays in that space. Hardware is often the entry point for IBM's software and services. With a stronger hardware business, it can fend off HP in the marketplace.

BS Reporters in Mumbai/New Delhi
Source: source