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Why IBM Needs Sun

Insiders at both companies say that it has much to do with Sun’s intellectual property.

After weeks of private negotiations, IBM was poised to buy rival Sun Microsystems for a reported $7 billion. Negotiations apparently broke down on Sunday when Sun’s board rejected a reduced offer. But beyond allowing IBM to reclaim from Hewlett-Packard the title of world’s biggest computer company, why would the company even want Sun, a sprawling Unix vendor that has struggled for years to even show a profit? The answer, according to insiders at both companies, lies in Sun’s intellectual property.

Not only would Sun be IBM’s largest acquisition ever, but the buy is out of character for the staid mainframe company, which has for several years worked to streamline itself and become a very profitable vendor of computer and Internet services. But sometimes a deal comes along that’s simply too good to pass up. Despite years of losses, Sun has continued to spend an average of $3 billion per year on research and development. Sun also has a huge patent portfolio that might have unique value to IBM, the world’s largest and arguably most aggressive licensers of technical IP, according to experts in IP licensing.

The parts of Sun that have most value to IBM are the Java programming language, Solaris (Sun’s version of the Unix operating system), the MySQL open-source database, and certain virtualization and cloud-computing components.

IBM has already made a huge commitment to Java, a language that it doesn’t control. Now almost 15 years old, Java has come into its own as a platform for mobile computing and server applications. “As a high-level language, Java is ideal for applications that are intended to run for weeks and months at a time without having to restart,” says Paul Tyma, former senior developer of server software at Google and now chief technical officer at Home-Account, an Internet startup in San Francisco. “Compared to older languages like C++, Java is ideal for large enterprise applications,” he adds. “The longer it runs, the better it runs.”

Java is also the dominant development environment for applications running on more than one billion mobile phones–an area of computing that is not only growing like crazy, but, with mobile devices being replaced every 18 months, evolving like crazy. Now IBM will have a crucial piece of that new business.

IBM already has its own version of the Unix operating system, called AIX, but Sun’s Solaris has larger market share and runs on a broader selection of hardware than AIX, which is aimed primarily at very big systems. But there’s an additional attraction to Solaris, one that is critical primarily for legal reasons.

For years, IBM has been dogged by a lawsuit from the tiny SCO Group of Lindon, UT. SCO holds certain rights to the UNIX operating system acquired from Novell and before that AT&T, and the company claims that IBM is responsible for allowing certain SCO UNIX code (and possibly AIX code) to be inserted in Linux, an open-source version of Unix that IBM has been involved in developing. While IBM has the upper hand in the SCO suit, which has been ongoing since 2003, it has become clear that some code commingling has taken place, which could hurt future copyright and intellectual-property claims over software developed for Linux and AIX. Sun’s Solaris, however, has taken an entirely separate development path and is free of any such taint. In other words, its DNA is clean. Given the years of SCO litigation, this has value for IBM.

Both Sun and IBM are major players in the Unix workstation market. If there are antitrust concerns about this merger they will probably center on the intersection of those hardware businesses.

IBM already owns the DB2 SQL database, while Sun paid $1.1 billion last year to buy MySQL, the most popular open-source SQL database around. Owning this would potentially give IBM new advantages at both ends of the market and help the company compete better against Oracle Corporation, its chief database rival.

Cloud computing, in which applications run in data centers on hundreds or thousands of servers, is an important new computing market. Cloud computing is dependent on virtualization–software that allows several operating systems to run at one time on servers used in the cloud. IBM has recently made several significant announcements about cloud computing and server virtualization. But announcements alone aren’t enough, according to sources inside IBM. Sun has virtualization and cloud-computing software that will allow IBM to deliver what it has promised.

No wonder IBM is so interested in Sun.

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