Deal done, Oracle looks to reassure Sun customers

On its first full day as owner of Sun Microsystems Inc., Oracle Corp. late last month moved quickly to convince users that it's time to stop worrying about the future of the acquired firm.

Questions about Sun's survival have lingered among its customers and investors since before Oracle's April announcement that it had agreed to pay $7.4 billion for the onetime Silicon Valley giant.

In the 12-month period that ended last September, Sun's share of worldwide server revenue declined from 9.5% to 7.5%, according to IDC's most recent numbers. Sun's server revenue in the third quarter of 2009 plunged by 35% from a year earlier, to $778 million, the research firm said.

In light of such results, Oracle's first priority is “to keep the vast majority of Sun customers on board and let them know they haven't been forgotten,” said Charles King, an analyst at Pund-IT Inc.

During a Jan. 27 briefing to announce the closing of the deal, Oracle executives said that Sun's server lines would be “significantly” pared back as the company moves to a build-to-order model that will get the hardware operation back to profitability.

Oracle has already reduced the number of products on Sun's price list by 50%, according to Cindy Reese, who was senior vice president for supply chain operations at Sun and has joined Oracle in an as-yet undisclosed post.

At the same time, Oracle executives pledged to retain core Sun technologies like UltraSparc chips, the Solaris operating system, Java technology and the open-source MySQL database.

The European Union had held up the deal until Jan. 21 to study whether Oracle's ownership of MySQL would blunt database competition.

Ed Screven, Oracle's chief corporate architect, said the vendor has no plans to offer on-demand computing services, which indicates that Sun's nascent Open Cloud initiative may have been cut.

Reese didn't say how much money Oracle hoped to save by moving to a build-to-order model, in which orders for servers will be sent straight to factories, and systems will be shipped from there directly to customers. The new model will allow Oracle to close two distribution centers and reduce freight costs because unsold servers won't have to be shipped back to factories to be updated with new parts, according to Reese.

University of Delaware CTO Daniel Grim, a longtime Sun customer, said one message he heard is that Oracle wants to have a closer relationship with Sun users. “If they do that, it will be good,” he said.

But Grim also wants to see some product commitments, including stronger support for Solaris on x86, which he noted is now all but unsupported.

“It gives me hope, but I'm not sure that I've heard enough yet that I'm reassured,” Grim said.

Though Oracle wouldn't disclose the number of workers laid off at Sun prior to the close of the deal, CEO Larry Ellison did say the combined company would add 2,000 salespeople — “twice as many people as we'll lay off.”