Is IBM making a $6.5 billion bid for Sun Microsystems?


Daylife/AP Photo

The technology industry is abuzz following a report by the Wall Street Journal saying that IBM, the computer industry behemoth often known as “Big Blue”, is in talks to buy the struggling Sun Microsystems for more than $6.5bn in cash.

Both companies have officially declined to comment on the suggestion, which analysts think would be a powerful boost for IBM in the finance and telecommunications markets, where Sun is especially strong but which have seen dramatic falls in capital expenditure due to the credit crunch.

Even if the deal is all-cash, it would represent a 100% premium on Sun’s market capitalisation at the market close on Tuesday, when the share price was at the same level as it was in 1996.

Sun’s value peaked with the dotcom boom in 2001, but has been sliding since and fell sharply with the rest of the Nasdaq technology-oriented stocks last autumn. IBM’s has remained steady as the company has in the past few years focussed increasingly on selling services rather than hardware; it sold off its PC-making division to the Chinese company Lenovo in December 2004, perceiving that the loss-making division was unlikely to move back into profit in the long term.

IBM and Sun have a common cause in pushing “open source” software based on the Linux operating system and similar products. Sun last year bought the Swedish open source database maker MySQL for roughly $1bn, but has found it difficult to make the spending pay off. Last December it announced a $209m loss for its second quarter, and announced last November that it was cutting its staff by up to 6,000 people – about 15% of its workforce.

Let the waffling begin.

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