Sun grabs server app firm for $US2bn

Looking to add a server appliance offering to its server portfolio, Sun Microsystems has announced that it will acquire Cobalt Networks in a stock-for-stock merger valued at $US2 billion.

Cobalt supplies server appliances for Web hosting, such as its Cobalt Qube, Cobalt Cache, Cobalt RaQ and Cobalt NASRaQ, to businesses, ISPs and educational institutions. These appliances deliver network-based services, Cobalt officials said.

"It's not surprising that Sun is looking at the server appliance space," said Kneko Burney, director of e-business infrastructure and services at Cahners In-Stat Group.

"Many people believe that with the evolution of storage solutions ... eventually what you'll see in the datacentre is a barrage of server appliances with specific functions," Burney said.

According to the terms of the merger agreement, each share of Cobalt common stock will be converted into 0.5 Sun shares, resulting in a purchase price of $2 billion. Sun expects to complete the purchase of Cobalt during the second quarter of its 2001 fiscal year, which ends December 31, 2001, a company statement announced.

As a result of the merger, Cobalt expects to increase sales of server appliances while Sun expects to establish itself in the low-end server appliance market.

"It's a great opportunity to grow the business," Sun president and CEO Ed Zander said.

Yet at least one rival vendor thinks Sun paid too much for Cobalt. "The interesting thing [about the deal] is that they paid 40 times the revenues to deliver products that we already have," said Michael Dell, CEO of Dell Computer.

The closing of the acquisition is subject to standard governmental approvals, Cobalt shareholder approval and customary closing conditions. After the merger is completed, Cobalt will become the server appliance business unit of Sun's network service provider organisation, the companies said.

"Cobalt's world-class products are a perfect compliment to Sun's industry-leading server offerings," Cobalt president and CEO Stephen DeWitt said in a statement.

This year, Sun has also purchased Innosoft International to strengthen its iPlanet e-commerce solutions, which it operates with America Online's Netscape Communications.

The moves mark something of a departure for the company, which traditionally have looked internally to develop products and services.

"This [deal] is a real indication that [there are a lot more] mergers and acquisitions to come in the marketplace," Burney said. "There's so much specialisation, it's difficult for one company to develop in all the necessary areas themselves."

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