Sun to Become IBM?

The two biggest names in internet infrastructure may soon become one. International Business Machines Corp. is in discussion with Sun Microsystems for a possible acquisition.

According to Bloomberg News, IBM is in talks with Sun about an acquisition, according to people familiar with the matter. Shawn Dainas, a spokesman for Santa Clara, California-based Sun, declined to comment.

After the dot-com bubble burst, Sun’s sales and profit growth stalled. Customers shifted orders to rivals such as Hewlett-Packard Co. and IBM. The competitors provided cheaper machines based on Intel chips and Microsoft Windows software -- two technologies McNealy had ridiculed.

“Scott’s been a lightning rod for a long time, but it hasn’t helped his business,” said Peter Sorrentino, a fund manager for Huntington Asset Advisors, which oversees $13 billion, including IBM shares.

The acquisition of Sun also may start a trend, as companies with good technology get absorbed into larger rivals with broader product lines, bigger customer rolls and more cash, Sorrentino said.

These product lines will open up to a best of breed company. Companies are moving toward virtual products relying not only on the technology they supply but putting into action as a service provider. These service providers will be classified as cloud computing, utility computing or software as a service.

The article also points out, Amazon.com Inc., Salesforce Inc. and Google Inc. are already offering cloud-computing services, by providing access to software that they manage from their own data centers. Sun announced plans yesterday to offer two cloud services later this year.

Providing the services requires the integration of computer hardware, software, networking switches and storage, said Brian Marshall, an analyst at Broadpoint Amtech Inc. in San Francisco. Right now, no company owns all the pieces it needs to do these projects solo, he said. That may prompt some of them to make acquisitions.

The three leading companies in data-center equipment are Cisco Systems Inc., Hewlett-Packard and IBM, Marshall said. Hewlett-Packard could buy F5 Networks Inc. or Brocade Communications Systems Inc. to bolster its switching capability. Or Cisco, the biggest maker of networking equipment, could buy EMC Corp. to get storage equipment and software, he said.

IBM needs more networking technology too, Marshall said.

“Everybody and anybody is in play if IBM and Sun are getting together,” IDC’s Turner said. “Cloud is one of those opportunities you need to be in because that’s where the market is going.”

The consolidation will only increase as companies look for synergies to add revenue and reduce SG&A.

Technology will be the first to bounce back, but there will be a lot of movement in the mean time.