Why IBM Wants Sun

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Sun's Cloud Advantage

In the world of cloud computing, powerful and inexpensive technologies will rule the day. Sun would bolster IBM's position in data-center technology, where it competes hard with Hewlett-Packard (HPQ) and Dell (DELL) and where it faces a new challenge from Cisco Systems, which just this week entered the market for data-center server computers.

While Sun has a penchant for inventing things, it hasn't been so successful when it comes to figuring out how to wring sales and profit from its innovations. IBM, through its large services organization and vast sales force, is expert at packaging up technologies into service offerings that are attractive to corporate tech chieftains. So another potential advantage of this merger is that IBM could market Sun's technologies more effectively.

There's an additional element of the story that shouldn't be underestimated. This could be a defensive move. Sun's revenue growth has been stagnant for three years, and IBM depends on Sun as an ally in its battles against Microsoft (MSFT). Sun owns Java, is a major player in the open-source computing world, and supports open computing standards—all of which are major counterweights to Microsoft's Windows and Office software monopolies. When Sun weakens, Microsoft gets stronger. Bad news for IBM.

There's no assurance this deal will go through. Talks could break down. It's even possible that another bidder might emerge. Cisco (CSCO) and Hewlett-Packard are both possibilities. But if it pans out, an IBM-Sun deal would mark a seismic shift in the tech industry.

Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.