Dana’s post on the Sun & IBM deal has two very interesting statements:

“This is part of Sun’s exit strategy from the server business.”

And:

“In many ways, Sun is becoming Red Hat.”

On the conference call, Schwartz & Zeitler spoke about early work to get Solaris running on IBM mainframes. This work is very early and nothing may come of it, but it was apparently kicked off because of customer requests. Keep in mind that RHEL & SLES both run on IBM mainframes already. Maybe Dana’s right; Sun is becoming Red Hat.

Dana’s prediction on Sun’s server exit centers on:

Why stay in the hardware business with X percent profit margins when the software business has nearly 3X the profit margins? (Based on IBM results – See pg. 27/124 )

With KKR’s investment in Sun, this is a question I’m sure has been asked. However, such decisions are never so cut and dry. The majority of Sun’s revenue comes from their hardware business. I wasn’t able to find a HW/SW/Services split of Sun’s revenue. If you take their FY06 revenue of $13.068B and use IDC’s estimate of 2006 Sun software revenue you end up with a little less than 15% of total revenue is driven by Software. What’s more, the majority of Sun software revenue is attached to Sun hardware. While deals like this one with IBM will help to reduce the SW+HW linkage, I suspect Sun software revenues will remain largely (85%+ ?) driven from Sun hardware. Remember that Schwartz claims that Sun isn’t a hardware company, they are a System’s company. If Sun’s goal is to be a System’s company, then there is no way they can “exit the server business”.

I think that this deal is simply Sun’s realization that Solaris is a valuable asset that has been tied to Sun hardware for the most part. This would be fine if the market only used Sun hardware. According to Gartner estimates, in 1Q07, Sun’s server share was 10.3% of the total market spending. Remember when Apple came out with iTunes & the iPod for Apple systems only and then expanded to support Windows to address a larger market. Same story here; it just took a little longer for Sun to consider expanding the market reach of Solaris.

So, maybe Sun is becoming Apple? Nah ;-)