IBM 'in talks' to buy Sun Microsystems
Schwartz dives for cover in Big Blue
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IBM has opened acquisition talks with Sun Microsystems, raising the prospect of a massive consolidation of the software, server and storage markets.
According to the Wall Street Journal IBM has mooted a price of $6.5bn. Sun is currently capitalised at $3.7bn ($4.97/share), but its share price has persistently fallen since the heady days of the dot com boom and has under-performed that of its computer systems competitors over the last few years, making it a much less expensive purchase now that it would have been three or four years ago. Legions of long-term Sun investors who have seen the value of their Sun holdings decline drastically will breathe a huge sigh of relief as they see the potential to make some money at least.
Any deal would likely bring very close scrutiny from regulatory authorities, given both firm's roles in the server, storage and systems software markets.
The Journal goes on to claim Sun has been hawking itself around the industry recently, looking to be bought, with HP also mentioned as one potential sugar daddy. If true, this confirms the perception that Sun has been impoverished by CEO Jonathan Schwartz's strategy of moving into open source software and relying for revenue growth on converting Solaris, Java and MySQL developers' into purchasers of Sun's servers, storage and services.
Unfortunately for Sun execs and investors, the free software download conversion rate into revenue dollars has been derisory, with Schwartz having promised soon-come blue revenue skies for what seems like years. Sun has continued to make money but its revenues have under-performed compared to its peers, and the company has been forced to go through rounds of restructuring and staff cuts - the most recent in January - to try and keep costs in balance with revenues.
Activist investor Southeastern Asset Management became Sun's biggest shareholder recently and some of the recent restructuring efforts have been thought to be influenced by this. Schwartz has consistently said he wants to work with this investor to increase shareholder value.
Selling Sun to IBM would give Southeastern Asset Management a profit on its investment and could be what it has been working for all along, and why it ponied up investment dollars in the first place.
There has been widespread industry speculation about Sun's future as analysts and commentators wonder how sustainable has been the board's and investors' faith in the Schwartz-led company and its strategy. But the fit of Sun's vast portfolio of assets into potential purchaser's businesses has always been a problem.
So why would IBM want a company which, at first glance, fits awkwardly into its portfolio of systems and services?
Sun product overview
Sun makes proprietary Sparc RISC servers, x86 servers and has storage and networking hardware, its Open Solaris operating system and allied software, its recently-acquired MySQL open source data base business, the massively popular Java software line, and its services business.
It has its own server chip design business and has persisted with this, in conjunction with Fujitsu, devising a line of multi-core processors to try and keep its servers ahead of the commodity x86 price/performance curve. IBM has its own RISC PowerPC chips which overlaps with Sparc. It's possible that the Sparc chip business will be offloaded to Sun partner Fujitsu, with the Sparc customer base being transitioned to PowerPC or x86 systems.
Sun's servers will overlap with IBM's PowerPc servers, and their users would surely be transitioned to IBM's own kit with the Sparc server line heading to the proprietary server cemetery. This transition will be eased by Solaris running on both Sun and IBM servers.
COMMENTS
Re: SUN has not been purchased yet...
Sales Execution, Market Positioning, Leadership and Business & Financial Cost Management
Agree with you David that its been revenue growth and generation thats at the root of Sun's problems for so long and then cost and profit management. In other words, its entirely been sales execution thats really been the problem.
Too technology led at the expense of being more sales led and the balance between the two.
Another example, sales folk within Sun compensated primarily on revenue rather than profit metrics means they're not as focussed on harder profit considerations.
Sun seemed to be doing fine up until Y2000 when they benefitted from a massive boost with Y2000 purchases and some typical large accounts buying more than double their usual run rate.
This however was mistaken for continued success and sales growth and not a one off once in a millennium factor.
It appeared to breed serious complacency in a fat perhaps overly rewarded sales force in general terms.
This appeared to breed a significant degree of arrogance, enterprise Solaris being almost a Sun monopoly, customers were faced with regular 7% quarterly and annual price hikes - just for the hell of it.
That was until a sales campaign brilliantly led on an international account that started in London and quickly spread to the US with Fujitsu Siemens used the new Fujitsu PRIMEPOWER Solaris servers to create a dual ticket and much needed credible alternate Solaris supplier than eventually led to Fujitsu SPARC64 being embraced by Sun in the M series Fujitsu high end machines.
Since 2000 Sun really have struggled and become an unfortunate shadow of their former selves even though right now, more than ever, the product and service offerings are their best ever.
Perhaps I'm alone in thinking the StorageTek acquisition was a good one. Although they massively overpaid, it brought them great storage expertese especially in tape and a new focus and fresh start in storage that has been going very well since.
It was market positioning, hubris and sales focus and execution, coupled with bloated costs and less than optimal leadership and management structures that have gradually and relentlessly led Sun to their current predicament in my view.
I am hopeful however that through and inspired and well executed merger, especially if jobs can be managed upward at this critical time, Sun as a division or important part of another IT player and why not IBM, will shine again as they so very much deserve.
Sun have some truly first class bright, innovative, smart and unique IT solution sets that are of tremendous benefit to the IT industry and customers.
Sun just forgot to to really put customers ahead of technology and sound business and cost management.
Now its shareholders and not just Sun management's decision and those of an acquiring company that come to the fore.
I wish Sun every success and hope that their great people and terrific ideas perpetuate.
Ray
Re: SUN has not been purchased yet...
Anon says, "it is about financials, and Im afraid to say that SUN have never been strong in this area and it has finally brought them down."
Dave says, "SUN was very strong in in revenue, for awhile, but they have never really recovered from the dot-com crash."
Adam says, "You seem to be confusing revenues with profit. It is true that SUN had a good time in the dot com era."
Nope. I was talking about Revenue. That is at the root of SUN's financial problem.
To make profit, if revenue was strong, all they would have to do is lay some people off once, which has already been done, and be finished with it. With declining revenue, it means multiple lay-offs need to occur. This has been the case since the dot-com crash.
RE: Re: RE: Re: Even the Sunshiners have to finally admit Sun is a Norweigean Blue.
Hey, I'm sorry, AC, I missed your little tantrum, probably due to the tears from laughing so hard at you Sunshiners.
"....No. I have more than that. I just thought it was the most obvious...." Hmmm. Looks like you should brush up on your witty repartee whilst you're updating your CV.
"....I could make other guesses too..." OK, I'm guessing more personal attacks, some vague accusations of geekiness, etc, etc. No chance of a reasoned argument as to why you think IBM buying Sun is a good thing.
"....Such as you are under 40....." Close, but no cigar. Not sure if that is some type of insult in Sunshiner Land - "You're so under 40, dude!" Can't quite see it catching on myself. So, still a big fat zero score for the Sunshiner.
"....You are not a team lead...." Still zero!
"....You have not spoken to the "executives' at your company, no matter how much you say that you have, on anything more important than "can you please pass the cream"... " Actually, I don't take cream in my coffee. And I talk to members of our board at last once a quarter. Can you even name your board members? Doubt it.
"....That last one was a bit of a stretch...." To be honest, all your posts fall in the stretch category!
"....I could be wrong there...." Are we talking about your ramblings regarding Slowaris or just your fantasising about my job?
".....but my guess is that the "Execs" took less from the discussion than you did...." Well, usually they take a lot of advice, they happen to expect it, it's what they pay me for.
"....Let me think then -...." Ooh, this should be a novelty for you - thinking! Try not to over reach here, I wouldn't want you to strain yourself.
"....Your "mates", that you talk about all the time, indulge your ranting, but deep down they wish you would go away. You have attempted to "hang out" with your "mates" at the local pub, but when you get there the discussion quickly dies while you shout down anyone that has an opinion different than yours. Arguing is a fine past time at the pub, but that loud guy with all the opinions gets real boring fast...." Still waiting for the thinking bit, dude. Try again, only try a lot harder. Has the Sunshine bleached all the originality out of you?
"....The part about the pub may actually be backwards. I am stuck between you going to the pub and no one will talk to you, and what I wrote above....." Blah, blah, blah. Are you sure you have the time and mental capacity to spare for these posts? I'm kinda concerned you won't be left with enough of either to write out your new CV, for when you go looking for your next McJob.
"....Any of this sound familiar Matt?...." Well, there were these two little kids screaming at each other in the local playground the other day, and their insults did sound very much like your stumbling thoughts. Are you going to call me "boogerface" next?
"....Maybe it's not all true, but this is the picture that you've painted. I have some other views on your withering life if you would like to hear them. What a lovely life you live." <Yawn> Have you finished yet? Sorry, I nearly fell asleep durig the last bit, it was just so boring. Instead of sulkily trying to insult me, I think you should really be more concerned about how your life is going to change now the Sun is so finally setting. Instead of venting all this bitterness, you should be looking for ways to move forward, build new opportunites. Just for you, 'cos I care, I'll post it again....
https://www.redhat.com/training/
/still pointing, still laughing!
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