Brendan Malkin

Oracle’s takeover of Sun
Microsystems will have a dramatic effect not just on the world of
IT manufacturing, but on European financial services, too.

The merger, after all, has now enabled Oracle
to offer a full solution comprised of its own database and ERP
offerings, and also Sun’s hardware and software solutions.

One financing-related impact this will have is
that while Oracle traditionally has sold licenses for the use of
its software on a short-term wholesale basis (with the funder
picking up the tab once the deal has been already sold by Oracle),
these deal terms will hereon become much longer as they will take
in the whole integrated solution.

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“A financing of the total solution, including
the software and the hardware, will make the deal terms much longer
than those which Oracle has been providing to date,” one senior
source said.

Having a decent financing offering will also
help drive Oracle’s profits, as it will enable it to scale up and
enhance the highly competitive one-stop-shop positioning that the
merger has provided it with. If this is the case, then some form of
restructuring of the Oracle-Sun financial services capability might
well be
needed.

It is no secret that Sun Microsystems Global
Financial Services, which in EMEA is run by Nicki Mackie, now uses
a panel of funders after it ceased using GE’s vendor finance arm on
an exclusive basis.

It is understood that it uses SG Equipment
Finance for a lot of its smaller deals and a panel of lessors for
its larger transactions.

Key Equipment Finance historically was the
sole funding partner for Storage Technology Corp until it was
bought out in 2005 by Sun, which now uses a panel of funders for
this part of the business.

There is room for growth in Sun’s leasing arm
in the US where penetration rates sit at around 10 percent, while
in Europe they are around 20 percent – not bad for a
quasi-captive.

If a scaling-up of the merged business takes
place, this will be nothing but good news for Sun which has been on
the back foot ever since the dotcom crash shattered, according to
sources, about 60 percent of its volumes.

The combined Sun and Oracle remains smaller
than the other end-to-end solutions providers such as IBM and HP.
However, with Oracle behind it, Sun will be able to grow its key
software assets – Java, MySQL and OpenOffice – and in doing so will
more effectively challenge Microsoft, which late last month
reported a 6 percent decline in total revenues.

Oracle, meanwhile, saw a 2 percent rise in
total revenues – although revenues would have grown by a healthy 11
percent, had it not been for the adverse impact of a collapse in
foreign exchange rates..

Latest figures from IBM Global Financing,
which has $26.1 billion in external receivables, show that the
captive is surviving the recession with last quarter 2008 revenues
up 3 percent year-on-year and return on equity of 28 percent.

Year-on-year, the rate of identifiable losses
at IBM Global Financing increased from 0.8 percent to 1.4 percent
at the end of the fourth quarter, with the rate of anticipated
losses increasing from 0.5 percent to 0.6 percent. Commercial
arrears over 30 days represented $41 million in the fourth
quarter.

Comment

Oracle’s purchase of Sun gives it a
big step up in the “battle for the enterprise data centre” to
compete with IBM and HP.

It offers a single supplier solution
from the ERP business software, the database, the operating system,
and the hardware, which is attractive to me as an IT director.

It can also offer virtualisation and
cloud computing which is hot technology for cost reduction. It will
make it even more compelling by offering finance for the whole
solution.

I would expect that this will force SAP into a
closer alliance with IBM, which was jilted at the altar by Sun.