How Oracle's acquisition will impact Sun

This is a period fraught with uncertainty for the employees of the wholly-owned Indian subsidiary of Sun Microsystems after database giant Oracle announced the acquisition of its parent for $7.4 billion on April 29.

Sun Microsystems has around 1,200 employees in India and an estimated turnover of around Rs 1,300 crore (Sun does not give break-up of India numbers).

In an exclusive interview to Leslie D'Monte, VP and MD (India) of Sun Microsystems, Anil Valluri, says he is taking solace from Oracle global chief Larry Ellison's assurance to a section of the global media that we want to hold on to Sun's experienced team of first-rate hardware engineers.

Even as he keenly watches the global developments unfold, Valluri gives his take on the acquisition while detailing the India picture. Edited excerpts:

What was your initial reaction to the acquisition?

It was surely one of the complete surprises since many names (including that of IBM and HP) were floated except that of Oracle. However, its a sense of relief that has now set in since theres hardly any overlap of technologies with Oracle, except for some middleware applications. I must add, though, that we still operate as two independent entities even in
India, since the regulatory and shareholder approvals are yet to fructify.

Theres always that one per cent probability that the deal could fall through (Incidentally, shareholders of Sun Microsystems have slapped Oracle with three class-action suits seeking to block its acquisition by Oracle. The shareholders have also named Oracle in the lawsuits).

If everything goes smoothly, by when do you see the merger panning out in India?

Globally, the deal is expected to be through by summer. That should mean anywhere between July and September. Oracle is known for acting quickly when it comes to acquisitions. After that, Oracle will tackle other
countries, including India. My guess is that the India integration should start taking place by the end of the year.

How have Sun's Indian employees reacted?

To begin with, I must say we were never overstaffed. Of course, we all remain wary. That's bound to happen when any acquisition takes place. Having said that, Oracle has globally indicated it would like to retain talent from Sun. This is a new business for Oracle, and the company will need skilled staff. We will see what happens. Its way too early to draw
any meaningful conclusion.

Are your customers confused too?

Our customers have been with us for years. They reacted very positively. They intuitively know what's good for them.

Do we understand, then, that work for you is as usual in India?

Very much. India (which currently accounts for around one per cent of Suns global revenue) has been a growing market for it. We continue to do well in the telecom (which accounts for around 30 per cent of the companys revenue) and banking spaces (slightly lower than 30 per cent).

We have clients like BSNL, Tata Teleservices, Reliance Communications and Aircel in the telecom segment, while ICICI, HDFC and PNB are some of our prominent banking customers. Our major revenue comes from the server and
storage sales (around 80 per cent of the companys revenue). The remaining comes from software and services.

Telecoms continue to need billing and networking features, while banks require our high-end servers (a market leader here) for their core-banking operations.

The government sector is another strong business segment for us. We do a lot of open-source work for NIC, and the governments of Gujarat and Tamil Nadu.

We also have a very strong presence in the developer space. We had over 100,000 Java developers, for instance, working on our Sun Development Network and creating applications in the January-March 2009 quarter. We
also had 50,000 students on this network.

But the economic slowdown must have surely dented your growth figures...
Surely. India is in no way insulated. Telcos, for instance, cant expand till their lines of credit (LoCs) open up. Banks too are facing liquidity problems. And these are our clients. So, we are bound to be affected. In fact, we had a severe year. Now we no longer are looking at year-on-year growth. Rather, we are measuring our performance quarter-on-quarter. The January-March 2009 quarter was better.

This quarter will be very tough since even the government wont be spending till the election results are out. We have won orders but the deals wont close till the results are out. But, the worst hit was because of the 26 per cent depreciation of rupee against the US dollar. We do business in Indian rupees but report it in US dollars. This clearly shaves off our profits.

Have server sales been affected badly too?

IDC says that server sales that saw 20 per cent year-on-year (yoy) growth will now see only a 4 per cent yoy growth. This is more bad news. I now expect zero or even negative growth. Theres a compression in total purchases. One only hopes the situation will improve soon once the Indian government stabilises.