IBM's rumored acquisition of Sun would have little impact

If rumors of a possible Sun Microsystems acquisition by IBM come true, federal customers most likely will see little impact in the short term, said procurement experts and partners of the technology companies, but in the long term IBM could shrink the combined portfolio of offerings to eliminate any overlaps.

Neither Sun nor IBM would comment about the potential impact of an acquisition, which was first reported by The Wall Street Journal on Wednesday. The paper said IBM may pay as much as $6.5 billion in cash for Sun, a computer components and software manufacturer.

Bill Vass, president and chief operating officer of Sun Federal, warned that nothing has been confirmed. An acquisition is "a rumor [that] has not been officially commented on by either company," he said in e-mail correspondence with Nextgov. "It's complete fantasy right now [and] way too soon to make any comments."

Executives with federal IT contractors were not surprised by the reports. Scott Friedlander, GTSI president and chief operating officer, said he and other executives at the Herndon, Va.-based solution provider "anticipated something happening with Sun" as its earnings fell behind its competitors'.

Ray Bjorklund, senior vice president and chief knowledge officer for FedSources, a consulting firm based in McLean, Va., said Sun has had financial troubles for some time. It reported revenues of $3.2 billion in its second quarter of 2009, which ended December 28, 2008, decrease of 10.9 percent from the same quarter in 2007. The company falls behind IBM, HP and Dell in the server market.

Sun's federal business took a hit in September 2007, when it canceled its multiple award schedule contract with the General Services Administration amid an ongoing investigation into the company's pricing for information technology products and services.

"Overall, I think this would allow federal agencies to have more confidence when they want to acquire Sun products," said Bob Laclede, vice president of business development for IT distributor Ingram Micro. "Everyone knows that IBM will be around, while there has been a lot of growing questions about Sun. So I think that this will be a boost for the Sun installed base in government."

Alan Bechara, president of federal IT reseller PC Mall Gov, agrees that a buyout would be good news for federal agencies. "For the federal customers, I see no downside as both companies have strengths in different agencies and/or technologies," Bechara said. "I would bet on renewed commitment to federal customers. As for contracts, [IBM] will assume all obligations and liabilities on existing contracts. It would be business as usual for the foreseeable future."

IBM also boasts a large, profitable services business, which is a major player in federal contracting and has been widely credited for being product-agnostic in its support and maintenance of customer IT solutions. Sun essentially could become "a tool in IBM's tool kit," Bjorklund said.

Agencies might see some consolidation of the two companies' product portfolios to eliminate overlap, but Bechara said IBM and Sun would make them compatible for chosen lines to ensure the installed base could easily transition from existing technology to new offerings.

The entity that could get stung most by an IBM purchase of Sun is the contractor community. "While there is a lot of potential from a product line integration and augmentation standpoint, [in the federal government] they have some diverse -- and I would guess competing -- distribution channels," said Larry Allen, president of the Coalition for Government Procurement. "Both firms have done an excellent job of working with channel partners [that] serve the needs of each manufacturer well. How to match those up and decide which to keep will be a tough task."