Sun ponders a Novell purchase

0 Comments | Deseret News (Salt Lake City), Aug 3, 2004 | by Don Clark

Sun Microsystems Inc., emboldened by improving sales and flush with cash, is considering acquisitions to outflank rivals, Sun's president said in an interview.

The long-ailing computer maker has looked at "a number of acquisitions," including software maker Novell Inc., said Sun president Jonathan Schwartz, as part of efforts to bolster its business in server systems and to angle for advantage against International Business Machines Corp. and Red Hat Inc., which sells the most popular version of the Linux operating system.

"We're one of the best-financed companies to pursue an aggressive acquisition strategy," Schwartz said. Acquisitions are "a topic of daily debate" at the company, he added.

Schwartz said Sun hasn't engaged in negotiations with Novell, which is based in Waltham, Mass., and has one-third of its work force in Provo. A Novell spokesman declined to comment.

Though action doesn't appear imminent, the acquisition comments underscore the high-stakes maneuvering surrounding Linux, the focus of a trade show in San Francisco this week. Once the poster child for a way to develop software using a community of programmers, Linux is an increasingly strategic weapon for IBM, Hewlett-Packard Co. and others selling low-price server systems powered by chips from Intel Corp. and Advanced Micro Devices Inc.

Though Linux is still available free, many companies pay Red Hat and other vendors for versions that come with technical support and other features. The shift to Linux-based systems has hurt Sun's server business, which was built around the company's own microprocessors and Solaris operating system.

But Sun has battled back, lowering prices and introducing new servers based on AMD chips. Sun, based in Santa Clara, Calif., said its unit sales of servers rose 46 percent in the fiscal fourth quarter ended June 30. A $1.95 billion legal settlement with Microsoft Corp. helped Sun swing to a profit in the period. The company puts its war chest at $7.6 billion, which includes $2.1 billion in cash and $4 billion in long-term marketable debt securities.

By purchasing Novell, Sun could get a leg up on IBM, Schwartz argued. Novell, with a market value of about $2.6 billion, last year bought Germany's SuSE Linux AG and sells that version of the operating system in competition with Red Hat. Schwartz predicts IBM, based in Armonk, N.Y., will increasingly seek to encourage more of its customers to use Novell's version of Linux because Red Hat is expanding into software that competes directly with IBM's offerings.

If Sun controlled Novell, Schwartz said, it could thwart IBM's strategy. "Maybe it's time we close the noose," Schwartz said of a possible Novell acquisition.

Under Schwartz, who was named president in April, Sun also is competing more aggressively against Red Hat, based in Raleigh, N.C. Sun is promoting Solaris on computers that use Intel and AMD chips and, in a new initiative, plans to adapt Solaris to run application programs developed for Red Hat's version of Linux.

Beyond Novell, Schwartz didn't provide specifics on possible acquisition targets. For Sun to expand its server business, however, he said it needs strength in several key technology areas including communications, storage, software and networking.