IBM’s move to buy Sun have broken down, however, IBM is still the best option for the company, according to industry watchers.

“IBM offers Sun the best chance at a good selling price, and is the best option among HP and Oracle. Though Cisco has been mentioned as a possible buyer, analysts said, such a deal wouldn’t make sense for Cisco.”

Talks broke down after Sun rejected an offer of about $9.40, a share price it regarded as too low from the original $10 a share.

“The only way it makes sense to buy Sun, which is really a server vendor is as a consolidation play,” Forrester Research Analyst John Rymer said “You’re trying to grab volume and add to what you already have.”

Meanwhile, IDC’s Analyst Matt Eastwood said he expects the negotiations to continue, despite the reports that the deal died over the weekend.

“Negotiations will go on … despite the seriously aggressive tactics by Sun complicating the deal. Both sides have already committed a lot of resources to this,” Eastwood said, adding that after IBM, there aren’t that many vendors lining up to take Sun. “I don’t think Sun wants to be left out there on their own.”

IBM shares drop sharply $1.31 to 1.28% at $100.91, as SUN fell $2.02 to 23.79% at $6.47 at the early trading.