Intel's Otellini Bets On IBM-Sun Merger

IBM is "in the hunt" to acquire Sun Microsystems and Intel's Paul Otellini "suspect[s] they'll get it." The Intel chief executive also thinks his company has "a really strong position" in an ongoing dispute over its x86 cross-license agreement with rival chip maker Advanced Micro Devices.

Otellini, speaking in a question-and-answer session Monday with employees that was included in an amended proxy statement concerning a new employee stock-option plan that Intel filed Wednesday with the Security and Exchange Commission, said, "Sun was shopped around the Valley and around the world in the last few months."

Answering a question as to whether Cisco's recent data center push was motivation for IBM to pursue an acquisition of Sun, Otellini said the "cheap Sun price" was likely the driving factor.

"A lot of companies got calls or visits on buying some or all the assets of [Sun]. It looks like IBM is in the hunt now. And at a hundred-and-some-odd percent premium, I suspect they'll get it," he said during Monday's presentation to Intel employees, the transcript of which was included in Intel's SEC filing.

"I don't think it had anything to do with Cisco. I think IBM is trying to consolidate architectures. IBM has the strongest Java license in the industry. By picking up Sun -- which is the creator of Java -- they really consolidate their position not just in Linux, but also in Java. I think the stuff on Solaris and SPARC is likely to see EOLs over time through the IBM acquisition. But [there is] no strategic reason for IBM to maintain that except to attempt to convert the very large Sun SPARC Solaris base to Power," Otellini said, referring to Sun's Solaris operating system and SPARC processors, competitors in the Unix server space with IBM's Power chips.

Would an IBM-Sun merger be good or bad for Santa Clara, Calif.-based Intel? Otellini hedged somewhat, saying, "I'd rather have Sun be independent I guess."

Otellini spent most of the presentation explaining Intel's proposal to change up its employee stock option program, which must be approved by shareholders in a vote scheduled for May. That plan involves an exchange of Intel employees' underwater options for a lesser number of new options at market price on the date of exchange. The top five Intel executives, including Otellini himself, cannot participate in the program, he said.

Intel would also provide employees with a special, one-time stock grant that "in effect doubles" their annual performance-based grant of stock options, and an increase in focal restricted stock unit (RSU) grants for hourly employees.

Next: Why Pick A Fight You Can't Win?

Otellini also touched on a number of timely issues in addition to his opinion about a potential IBM-Sun deal. He said that Intel feels "very strongly" that by spinning off its manufacturing assets to form a new company, Sunnyvale, Calif.-based AMD had violated terms of its cross-license agreement with Intel, that the dispute would play out "through the courts" and that Intel would prevail.

"Why pick a fight you can't win?" he said.

Another question brought up cross-licensee, Nvidia, which this month confirmed that it is contemplating the production of an x86-based System-on-Chip (SoC) device. Would that be a problem for Intel? Otellini referred to "certain exclusions" in the cross-license with the graphics chip maker, but said Intel wouldn't "react to anything until there's a real product."

Otellini also had a fairly humorous exchange with an employee who wanted to know why Intel hadn't cancelled its sponsorship of Formula One racing team BMW Sauber as part of its cost-cutting efforts.

"I didn't announce that. I inherited that puppy. I feel like Obama, don't I?" joked Otellini, making it clear he's not a fan of the costly sponsorship. But "a contract's a contract," he noted, and would have to be honored despite Intel management's discussion of getting out of the deal.

"OK," replied Otellini's questioner. "And I guess my question was if we can't get out of it, can we at least insist they get a driver who doesn't crash every time?"