IBM to buy Sun

News Flash!  IBM to buy Sun.  It appears IBM is trying to consolidate the market for servers by purchasing Sun Microsystems for a whooping $6.5B in cash.  This is probably a knee-jerk reaction to Cisco systems announcement just this week that it will start selling servers.  The Internet giant, Cisco, entering the market is a serous threat to the existing market competitors.

That market before this week was mainly Dell and HP on the low side, Sun in the middle and IBM at the high end.  Both Dell and HP had been in pricing wars, and have been gradually reducing server pricing to gain market share, thus reducting margins.  We believe IBM is trying to consolidate the market, surround Cisco with both the high end and middle end systems, and at the same time increase IBM dominance in the market, before Cisco can gain a toehold.

IBM in the past had dominated the large mainframe market, but we think this market is gradually subsiding, just like it did when Digital started coming out with minicomputers to replace IBM mainframes.  In this case, IBM probably sees Cisco as a threat to their high end market share, and are afraid history may repeat itself.

We see Dell and HP continuing to occupy the low end with IBM and Cisco, with instant credibility, taking over the high end.  Although obviously not without a fight from IBM.  It should be an interesting battle, for those in the middle are doomed to eventually die.

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