Oracle could deal Sun hardware to HP by Jon Fortt @FortuneMagazine August 27, 2009, 5:28 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Oracle CEO Larry Ellison says he wants to keep Sun's hardware business, but he might be bluffing. Photo: Oracle Could the Sun still come out at HP? It’s no secret that Larry Ellison wanted Sun Microsystems JAVA for its software, not its servers. Regulatory filings show that before the hard-charging Oracle ORCL CEO put together his successful $5.6 billion offer and outbid IBM IBM for Sun in April, another party was kicking the tires as well. One of the worst kept secrets in Silicon Valley is, that someone was Hewlett-Packard HPQ CEO Mark Hurd. Since then, though, Ellison has said that he intends to keep all of Sun for himself. But maybe he doesn’t. A person with knowledge of the communication between Oracle and HP suggested to me recently that Oracle still might deal those hardware assets to HP. And you know what? It could be a fine idea for both of them. Why would Ellison want to give up Sun’s hardware? Actually, he never wanted it in the first place. Oracle’s first offer to Sun was for just the software business, regulatory filings show. Oracle is a software company after all, and while it certainly has the wherewithal to transform itself into something else, it might not be worth the hassle – or the ding to its profit margins. Ellison claims he plans to use Sun’s server business to build appliances that are custom-tuned to run Oracle applications – like a data center version of Apple’s strategy of marrying hardware and software. But what else is he supposed to say about hardware now that he’s stuck with it? HP might actually want Sun’s hardware to boost its services business. HP became a services heavyweight when it bought outsourcing giant EDS last year, and a little-known fact is that at the time, EDS was Sun’s best customer. You can bet that EDS still buys plenty of Sun hardware – so by owning Sun technology, HP could probably goose the profit margins on many of its services deals. More reasons a deal could happen: HP executives say the EDS integration process is going well, and they feel good about the health of the outsourcing business in general. Also, there are signs that the global economy is stabilizing, which should make HP’s brass in Palo Alto less queasy about parting with the cash. There are also plenty of reasons the companies might not do a deal. The economy seems to be improving, but it’s still touch and go, and HP might not want to shell out for another fixer-upper. Or Oracle might genuinely want to keep the hardware business. But don’t put too much stock in Ellison’s claim that he wants to own hardware. When it comes to mergers and acquisitions, you have to take Ellison’s proclamations with a grain of salt. As we saw when he maneuvered to buy PeopleSoft and BEA Systems, he’s willing to bluff to get what he wants. In this case, Ellison might be bluffing to rid of something at a decent price.