Analysis: IBM-Sun deal might only be the beginning

Note: For the latest on this deal, click here.

Sami Lais is pinch-hitting for me on this one. Thanks, Nick

The handful of acquisitions in past weeks has been largely overshadowed by a possible acquisition of Sun Microsystems Inc. by IBM Corp. Less speculation followed the “Dallas” cliffhanger: Who shot J.R.?

The Wall Street Journal reported that IBM is likely to pay about $6.5 billion in cash for Sun. The New York Times calls it “nearly $7 billion,” and Dow Jones Online ramps it up to $8 billion.

IBM’s strategy, according to the pundits, is to expand its position powering big data centers before the anticipated consolidation in the server market hits, and unify Solaris operating system and Java programming language supporters in a potential Windows (on higher end servers) killing drive.

But there are plenty of other suspects and motives in this melodrama. Dell Inc. is seeing the possible merger as an “enormous opportunity,” with the ensuing uncertainty surrounding Sun servers driving enterprise customers to Dell, Reuters said.

Dow Jones suggests a shootout among Hewlett-Packard Co., IBM and Cisco Systems Inc. may be coming. Cisco entered the data server market with its acquisition of Nuova Systems Inc.

Rumors of a sale or restructuring of Sun began growing louder last fall when Sun co-founder Andy von Bechtolsheim resigned to focus, along with co-founder David Cheriton, on startup Arista Networks Inc. The company has built a cloud computing 10-GbE network switch that is smaller and, at $500 per port, 90 percent cheaper than similar Cisco products. One early customer is Lawrence Livermore National Laboratory.

Google Inc. joins the cast of characters as the possible originator of the Arista technology. A Nyquist Capital analyst in 2007 deconstructed Google’s performance and deduced that the company had built a new 10-gigabit switch, and that the Arista switch was a remarkable match for it. Bechtolsheim was an early investor in Google.

Bechtolsheim and Cheriton, known as men with a golden touch, are a motif in this story: in 1996, they sold one of their startups (Granite Systems Inc.) to Cisco, which turned the gigabit technology into profits, and in 2004, sold another startup (server-maker Kealia) to Sun. Other key players in the troupe include Jayshree Ullal, former Cisco executive, now chief executive at Arista; and ex-Sun executive Eric Schmidt, now CEO of Google.

The answer to the question of whether IBM will bid on Sun may be just the beginning of this convoluted tale.