IBM, Sun Micro talks collapse over price: source

IBM's talks to acquire smaller computer and software rival Sun Microsystems Inc  broke down on Sunday after Sun rejected IBM's $7 billion offer, a source with knowledge of the matter said.

The collapse of negotiations, if final, is likely to hurt Sun's shares as a buyout was seen as a means of survival for the once-storied Silicon Valley company, which has been losing market share. A deal would also have helped IBM compete more effectively against rivals such as Hewlett-Packard Co.

The source, who was not authorized to speak publicly about the matter, said Sun was unhappy with International Business Machines Corp's offer of $9.40 per share or below, and that it was unclear if talks would resume.

The bid represented a premium of up to 89 percent on Sun's shares before deal talks were first reported last month.

"Sun is now sort of damaged goods," said Peter Falvey, a technology banker at Revolution Partners. "If IBM got under the covers and didn't like what they saw, then what does that mean for other potential buyers?"

An IBM spokesman declined to comment, while Sun officials did not return calls.

Sources told Reuters last month that IBM was in exclusive talks to buy Sun and had proceeded to the due diligence stage. One source had said on Saturday that IBM lowered its offer price for Sun to $9.50 a share from $9.55 a share and that a deal may be announced this week.

Sun shares had risen to $8.49 on Friday, from $4.97 on March 17, a day before talks between the two technology companies were first reported. The Wall Street Journal had previously said IBM's original bid was $10-$11 a share.

DEAL FACTORED IN

The collapsed talks are expected to damage the smaller Sun more than IBM, the world's largest technology services provider, which has fared relatively well despite the global economic slump thanks to its outsourcing business and its shift from hardware to higher-margin software sales.

Kaufman Brothers analyst Shaw Wu said it was a mistake for Sun to reject the bid, citing the leap in Sun shares since reports of the deal talks.

"The acquisition is already factored into the market's thinking. To reject it over 50 cents a share, or whatever it may be, doesn't seem like a very prudent move," Wu said.

Sun posted an 11 percent decline in quarterly revenue for its fiscal quarter ended December 28, while gross margins shrank to 41.9 percent from 48.5 percent from a year earlier.

The company rose to prominence selling high-end computer servers in the 1990s but never fully recovered from the dotcom bubble burst earlier this decade. Analysts also say it has failed to fully capitalize on its software assets including Solaris and Java.

Some analysts have thought from the start that a deal between Sun and IBM could prove difficult, particularly due to the likelihood of intense antitrust scrutiny.

The merger would give the combined company 65 percent of the $17 billion high-end Unix server market, according to market researcher IDC.

Failed negotiations with IBM could mean that Sun will need to look for another buyer, and contend with a lower offer. But no bidder other than IBM has emerged in the months that Sun has been shopping itself.

The Wall Street Journal reported that Sun had demanded assurances from IBM that it would proceed with the deal in the face of regulatory challenges, fearing IBM's offer left too much room for it to walk away.

NEGOTIATION TACTIC?

While a deal was widely seen as more crucial for Sun than for IBM, many analysts had also said it would help IBM if the company is able to cut costs and make better use of Sun's assets.

IBM shares have also risen 10 percent since the negotiations were first reported, helped by an upswing in the overall market.

Tim Ghriskey, chief investment officer for Solaris Investment Management, which manages about $2 billion, said the latest developments could be part of negotiating tactics and that Sun is still likely to strike a deal at around $9.40 a share and that IBM was still the most likely buyer.

"Like any acquisition candidate they are trying to force the highest bid possible," Ghriskey said. "IBM doesn't necessarily need these assets. But I think they could probably benefit from them at a reasonable price."

Buying Sun would hand IBM a clear lead at the high end of the $45 billion overall server market fought over with Hewlett-Packard.

It would also broaden IBM's software portfolio, add storage products that vie with EMC Corp and Network Appliance Inc.

Analysts have said Sun's software could also help IBM compete with Microsoft Corp , as well as Cisco Systems Inc , which some see as IBM's biggest rival in the long term.

Both Cisco and IBM have been expanding beyond their traditional products to new technologies like "cloud computing," in which companies store data and computing power in remote data centers accessed over the Internet, rather than buy their own computer equipment.

(Additional reporting by Jim Finkle in Boston, and Anupreeta Das and Megan Davies in New York; Editing by Tiffany Wu, Martin Golan and Ian Geoghegan)

The Web Service “My Feeds” is a Game Changer

The use of APIs pervades the emerging world of cloud computing.  People find they can mix and match information from all sorts of sources to create an application that specifically meets their needs.  Indeed, companies such as The Web Service are in the business of providing you with key business data through Web service-based APIs, along with other players out there.  However, a missing piece has been the ability to leverage your data through such an API without forcing you to get into the API enablement business.  Considering this: The Web Service has launched a new service called My Feeds, and it's clearly changing the game around Web-delivered information.

To best understand My Feeds, watch their YouTube video.  The core value is that you can easily create a data feed, using your data, on their platform.  Thus, those who want to leverage your data can easily provision the use of this data feed, providing data from your enterprise, but leveraging The Web Service cloud-delivered technology.  Very simple, but very powerful. 

Examples of the application of this technology would be to provide your customers with inventory data, on-demand, and delivered through a Web-based API.  Thus, their systems could communicate directly with your systems, and the sharing of this information would translate into more sales since your customer's systems would have a real-time understanding of inventory levels. 

 

What's unique about this is the ease of creating the feed.  While you can certainly build APIs around your data via weeks of custom development, or leverage one of the existing players that provide API enablement services, that cost of development and management headaches make this path impossible for traditional enterprises.

The core notion of this technology is to provide enterprises with an easy and guided path for creating, testing, and managing a data feed that takes hours, not days.  While your mileage may vary, I suspect the ROI for this type of project is almost immediate. 

As cloud computing continues its quick rise, the need to externalize core business data in a cost effective and easy way will continue to increase.  Approaches such as My Feed mean that this externalization process is finally within reach of the traditional enterprise, moving us closer to the real-time and connected business community.

SaaScon 2009, a conference focusing on Software as a Service and Cloud computing as themes.

Microsoft and IBM, estranged over IBM's high-handedness in dictating a seemingly innocuous Cloud Manifesto that's read as Big Blue's attempt to stamp itself the ultimate leader of the cloud movement met Monday and parlayed at the Cloud Computing Expo in New York.

Tuesday morning they released what they called "minutes" of the "informal meeting."

It is believed a formal trade organization will be announced momentarily.

Here's the statement:

"Representatives of CCIF, CloudCamp, Cisco, IBM, Intel, Microsoft and the IEEE-ISTO met while attending the Cloud Computing Expo in New York. Other companies were invited but were unable to attend, generally due to the short notice. The companies agreed on a shared goal to promote use and awareness of open and interoperable cloud computing. The group brainstormed several ideas including the possibility to build on the momentum created by CloudCamp. Another topic was the ability to enable participants, from individuals and companies, both large and small, to be able to contribute to and use the results of broad community collaboration. Additionally, the possibility of a trade association or marketing association for cloud computing was discussed but no specific actions were agreed. The final topic was the need to have broader participation from the community in this discussion."

Amazon CTO Werner Vogels spoke at the show but apparently couldn't be drawn into the discussion and Google, which was originally a signatory but dropped out before the Manifesto was officially released on Monday, has yet to re-up. Reportedly it was lacking certain internal sign-offs.

The young Cloud Computing Interoperability Forum (CCIF), another original signatory, pulled out over the weekend in response to Microsoft's criticism that the Manifesto was a closed backstreet affair that didn't allow for additional input.

According to the opencloudmanifesto.org site that's now live, the Manifesto currently has 76 subscribers including AT&T, Abiquo, Accario, Akamai, ALTIC. Org, AMD, Aptana, Appistry, Arista Networks, Barcelona Supercomputing Center Blend digital, Boomi, Business Logic, Cast Iron, Cisco, CSC, Dilgenter, the Eclipse Foundation, Elastra, EMC, Enomaly, Engine Yard, enStratus, F5, Global Media Solutions, GoGrid, Heroku, Hyperic, IBM, In Cloud Company SL, Juniper, LongJump, Luminis Innovation Consulting, ManualsMania, Metadot, MyCube9.com, newScale, Northwest A&F University (Shanxi, China), North Carolina State University, Nirvanix, Novell, the Object Management Group, Okuri Ventures, Open Cloud Consortium, Open-XChange, Prgmr.com, PointStar, QuadraForte, Rackspace, Rails Machine, Red Hat, Tech4Quant, Terremark Worldwide, the Hot Air Channel, the Reservoir Project, Trend Micro, RightScale, rPath, Saasmania, S3 Graphics, Soasta, Sogeti, Sun, Synapses, Technical University of Catalonia, Telefonica, the Open Group, Velneo SA, Venue Software, Veredas, VMware, Voxeo, VPS.net and Zenoss.

SaaS and Cloud Computing

SaaScon 2009, a conference focusing on Software as a Service and Cloud computing as themes ---

 

At the outset, host Jeff Kaplan and Ron Milton said that $6.8B was the SaaS revenue in 2008, according to Gartner group. IDC said 76% of US companies had at least one SaaS deployed. Top five applications in SaaS delivery model are (not surprisingly) - CRM, HR, Collaboration, Travel expenses, and Sales Incentives. Top five drawbacks are - integration with current in-house applications, potential security exposures, offline connectivity, vendor lock-in, and network bandwidth issues. As expected the top five benefits are - fast roll-out, monetary savings from a lack of capital investment, option of plain-vanilla vs. customized implementation, and lower TCO (total cost of ownership).

 

Under the current economic realities and tight IT budgets, SaaS makes lot of sense. One surprising fact is that 75% of all SaaS deals do not have SLA (Service Level Agreement) according to Gartner. The conference speakers also talked about PaaS (Platform as a Service)  and IaaS (Infrastructure as a Service). Examples of SaaS -  SalesForce.com (CRM), and NetSuite. Examples of PaaS - Force.com, and Google App. Engine. Examples of IaaS - Amazon EC2 (elastic computing cloud) and AT&T Synaptic Hosting.

 

Speakers said PaaS is a stepping stone to Cloud where development environment is offered to build own applications (similar to what Microsoft did 20 years ago, but on their platform). One future scenario could be your own information grid at the center interacting with several clouds such as data services, application services, hardware services, storage services, network services and others. This will include not only interaction with your internal cloud or grid, but also intra-cloud communication, something still at a very nascent stage.

The parallel to the commoditization of electricity was drawn a few times. How that grid (electricity) finally emerged with self-organizing, self-registration, and self-assembly features. Computing will eventually get to that stage - full compliment of services executed in a highly differentiated grid environment.

But the journey has started and there is no looking back to the good old days of huge capital expenditure of building in-house infrastructure with hundreds of humans managing it. We see the beginnings of that already, all of us using our iphones to access mail, calendar, maps, stock prices, airline information, and social networking like facebook, Twitter, and Linked-In.

One CIO explained how he reduced his IT spend from $607K in 2007 to $259K in 2008 by switching to SaaS (Google Apps for gmail, videochat, documents, spreadsheets, charts, etc.). He adopted Netsuite as the core ERP/CRM application and picked other packages        like WorkOasis (facility management), Halogen (performance management), ADP (payroll. HRIS), and admin tools like Webex, Echosign, eFax, Zoomerang, and VisualCV. His staff cost was reduced from $166K in 2007 to zero in 2008. Hardware cost was reduced from $52K to $8K. His is a small size company selling exercise equipments. No wonder the first adopters of Saas are the small to medium size companies.

Microsoft Says SMBs Moving To SaaS, Virtualization

Virtualization, IT consolidation, and Software as a Service (SaaS) are among the top priorities for small and midsize businesses this year, according to a new Microsoft survey.

Released Wednesday, Microsoft's survey of more than 600 Small Business Specialist partners in the U.S., U.K., Canada, France and Brazil, found that these partners anticipate a 20 percentage point increase this year in the number of SMBs that use SaaS.

Ross Brown, vice president of solution partners at Microsoft, says SaaS makes sense for SMBs in the current economy. "Most SMBs are cash-flow-financed instead of debt-financed, and the pay-as-you-go model lets them spend more money on service configuration than on capital costs," Brown said.

Brown says Microsoft is seeing "significant uptake" in its Business Productivity Online Services suite, which includes hosted versions of Exchange, SharePoint, Office Communications Server and LiveMeeting. From July to November 2008, more than 1,500 partners joined the Microsoft partner program for Online Services, and this community is growing at a rate of 100 partners a week, Brown said.

Microsoft partners are seeing ample services opportunities in migrating SMBs from legacy e-mail systems to hosted Exchange, according to Brown.

But while SMBs are interested in SaaS, they still face certain obstacles in shifting their business operations to services. For example, many SMBs have line-of-business apps that are designed to run in client-server environments, such as those built on Access or SQL Server, said Dave Sobel, CEO of Evolve Technologies, a Fairfax, Va.-based Microsoft Gold partner.

"The moment a line-of-business application comes into the mix, they're back on-premise. And that happens most of the time," Sobel said.

Virtualization and IT consolidation were identified by fully half of survey participants as the most effective for cutting operating costs. But for SMBs, the cost savings of virtualization aren't just on the server, but also in application virtualization and streaming, Brown said.

"Application virtualization technology can help you deliver applications to older computers so that your hardware refresh can go slower," he said.

However, the biggest potential for Microsoft lies in getting its server virtualization offerings into the SMB space, which is the one part of the market where Microsoft doesn't trail VMware, Sobel said.

"Server virtualization is where the first opportunity lies, because SMBs haven't been virtualized in large numbers, and the field is still open," Sobel said.