Last week's Wall Street scuttlebutt that Oracle might make a so-called "strategic" move and acquire Virtual Iron has now blossomed into a couple of unconfirmed press reports that the pair has progressed to a signed letter of intent.

Jefferies analyst Katherine Egbert, who put the rumor in play, suggested that Oracle wanted the little start-up for its server virtualization management skills and to spoil anybody else's chances of getting it.

She also suggested that the move was most threatening to VMware presumably because Oracle could use it to try to block VMware's further penetration of its user base and instead attempt to satisfy the base's itch to virtualize with its own widgetry.

Oracle of course already has a Xen hypervisor packaged up as Oracle VM (OVM), an otherwise undistinguished and under-marketed bit of widgetry, as well as a VM manager and it just put out Oracle VM Management Pack for Enterprise Manager.

So what does it need Virtual Iron for?

The Burton Group says Virtual Iron's Xen-based widgetry is very close to VMware in required features but - being targeted at SMEs that can't afford VMware - lacks the product lifecycle support policies and enterprise management infrastructure integration of an enterprise product as well as a lot of the bells and whistles favored by the enterprise set.

Oracle needless to say services the enterprise.

Virtual Iron, the smallest and least prepossessing of the recognized virtualization players with a negligible market share and 100% channel, does have a thing called LivePower that turns underutilized servers on and off as needed and migrates VMs to better effect. Oracle may be interested in that.

The Burton Group also points out that Oracle's OVM links with a Red Hat kernel while Virtual Iron uses SUSE and OEMs Novell's Platespin Migrate, suggesting that Novell will be the one to say ouch if the deal does go down.

Virtual Iron was started in 2003. It's collected five investment rounds from Highland Capital, Matrix Partners, Goldman Sachs, Intel Capital and SAP Ventures totaling $65 million. The latest round worth $20 million was just brought in this January. The company claims 2,000 customers.

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