Oracle, Sun deals may inspire more

Large companies seek bigger roles through software

Vauhini Vara, Don Clark and Christopher Lawton, The Wall Street Journal

Published January 21, 2008 at 12:05 a.m.

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Photo by Associated Press

Oracle Chief Executive Larry Ellison

Photo by Justin Sullivan / Getty Images

Sun Microsystems CEO Jonathan Schwartz

Acquisitions by Silicon Valley software giants Oracle Corp. and Sun Microsystems Inc. suggested that a slowing economy and other forces could kick a recent wave of high-tech deals into higher gear.

Oracle succeeded last Wednesday in forging an $8.5 billion deal to acquire rival BEA Systems Inc., a maker of programs known as middleware that had resisted an unsolicited bid from Oracle in October. The $19.38-a-share price is about 14 percent higher than Oracle originally offered but below the $21 figure that BEA sought. Investor Carl Icahn says he urged Oracle to raise its bid and then lobbied BEA to take the sweetened bid.

Sun, meanwhile, continued to expand beyond computer hardware with a $1 billion deal to buy MySQL AB, a Swedish startup that sells database software based on a programming concept known as open source.

Both deals come amid increasing fears that a slowing U.S. economy could dampen global spending by businesses on technology, adding to the financial pressures on small vendors trying to remain independent. At the same time, large companies are moving to grab stronger positions in one of the areas likely to remain hot - software that helps companies build Web-based software and services. Both BEA and MySQL play an important role in that process: Corporate customers typically use BEA's technology to build business software that uses the Web, while companies such as Google Inc. and Facebook Inc. use MySQL to help run their Web sites.

"We have seen no cessation of interest in the Internet among consumers and businesses looking for cost reductions and looking for efficiency," says Jonathan Schwartz, Sun's chief executive officer.

San Jose, Calif.-based BEA is known for products that include application servers, a layer of software that serves as a foundation when companies build Web- based software. Its products share some underlying technology with competing offerings by International Business Machines Corp. IBM is No. 1 in the middleware market, with 31.8 percent of 2006 sales, estimates market researcher Gartner Inc., compared with 10.5 percent for No. 2 BEA. Database software, which acts as a filing cabinet for information, also is frequently incorporated into programs that businesses use to run their operations. Oracle of Redwood Shores, Calif., accounted for 40.5 percent of the database market in 2006, Gartner estimates, compared with less than 1 percent for MySQL and other open-source databases.

The products offered by BEA and MySQL appeal to companies choosing to build Internet applications and services from open-source programs or other building blocks that are free - or at least inexpensive - and don't lock them into a single vendor. For example, customers can now easily move programs they have written for BEA's application server to IBM's technology, and vice versa, says Yefim Natis, a Gartner vice president who also holds the title of distinguished analyst.

At the same time, many customers are willing to pay support fees to large suppliers that can provide the expertise they need to help stitch together those software components and fix anything that breaks. Oracle and Sun - both large companies that have long supplied products for running heavy-duty computing jobs - plan to exploit the situation by positioning themselves as more credible technology partners for customers that are thinking of building on software from BEA or MySQL.

High-tech deals

Oracle Corp. and Sun Microsystems Inc. have made acquisitions that suggest a slowing economy and other forces might kick a recent wave of high-tech deals into higher gear.

* Oracle Corp. will acquire rival BEA Systems Inc., a maker of middleware, in an $8.5 billion deal. The offer is 14 percent higher than Oracle's original bid.

* Sun Microsystems Inc. will expand beyond computer hardware to buy Swedish database software startup MySQL AB for $1 billion.

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