IBM looking to gobble Sun

SAN FRANCISCO - If IBM Corp. scoops up Sun Microsystems Inc. for at least $6.5 billion in cash, as the companies are discussing, IBM would be making an opportunistic grab for a deep well of technology that Sun has nearly buried itself developing.

The proposed acquisition would be IBM's biggest yet. It would shake up Silicon Valley and the corporate computing world, marrying two traditional foes whose animosity was relatively recently squashed.

A person familiar with the negotiations confirmed the talks Wednesday to the Associated Press. This person spoke on condition of anonymity because the discussions are ongoing and might not lead to a deal. The acquisition negotiations were reported earlier by the Wall Street Journal.

The news sent Sun shares soaring $3.92, or 79 percent, to $8.89. IBM shares fell 96 cents, or 1 percent, to $91.95.

If a deal can be done, it would come as companies specializing in computing infrastructure are consolidating and encroaching deeper onto each others' turf. Hewlett-Packard Co. paid $13.9 billion last year to buy technology-services provider Electronic Data Systems, and this week Cisco Systems Inc. announced its long-rumored plans to start selling servers, a move that pits Cisco against longtime partners like HP and IBM.

Merging the corporate cultures of Armonk, N.Y.-based IBM and Santa Clara, Calif.-based Sun would be a challenge, and lots of Sun's jobs would probably be cut. Sun revealed plans in November to jettison up to 6,000 jobs, or 18 percent of the global workforce, after slashing 7,000 jobs the previous three years.

But Sun would come relatively inexpensively, because its shares have been on a steady downfall since the dot-com bust. Although $6.5 billion would represent a significant premium over the market value of less than $4 billion that Sun had before the talks leaked, Sun's last quarterly report shows it with more than $2.6 billion in cash and securities that could be readily converted to cash.

"Sun has a wealth of technology and intellectual property," said Jean Bozman, a research vice president with IDC. "You have to look at Sun in a three-dimensional way. It provides hardware, it does servers and storage, it has software -- it has all these elements that would go into the next-generation data center, not just one or two."

As of the end of 2008, Sun owned 10.1 percent of the worldwide server market. IBM held nearly 32 percent and HP had nearly 30 percent.