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Did Sun's total package kill the IBM deal?

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It's ironic but fitting that executive bonuses, a subject that's ignited popular anger against the very companies in Sun Microsystems' core customer base on Wall St, helped kill Sun's future.

It's been reported that a disagreement between IBM and Sun over post-acquisition packages for both chief executive officer Jonathan Schwartz and chairman and co-founder Scott McNealy helped sink a deal that sources last week told The Reg was imminent.

Schwartz and McNealy would have received a package of combined salary and - yes, incredibly for a company that's missed numerous boats and trod water for the past nine years - bonuses worth three times their annual pay.

Schwartz, whose been leading the failed crusade of first giving away Sun's software and then somehow monetizing it later, was last year paid a basic salary of $1m.

So far, Sun's refused to comment on what it's called rumors and speculation about a deal, while IBM's been unavailable for comment.

If the IBM deal did sink because of haggling over packages, it would be a sad comment either on the failure of the egos hanging on to their Ts and Cs or the overzealous lawyers arguing for their clients to see the bigger picture of giving Sun and its customers a decent future.

The talks - publicly at least, are off. This could, of course, be the continuation of negotiations by other means: both sides playing hardball, meaning a deal's still in the air.

There can, though, be no question that Sun entered this courtship as the weaker party so it's hard to see why IBM should be tempted to bite. Sun remains overstaffed, becalmed and still recovering from the last recession. Forbes has produced handy recap of six mistakes made by Sun under McNealy and new broom of Schwartz.

I'd add one more, as most people tend to overlook this: middleware and applications.

Software was ignored under McNealy for all his fightin' talk of taking on Microsoft. It only came into vogue under Schwartz, who had a passion for open sourcing Sun's assets and allowing the revolving door or talking heads to continue turning instead of tackling some root-cause problems by installing talent and devoting resources to the subject at hand.

The result has been that, when it comes to working out how to make money off open source, Sun is still rubbing two sticks together while IBM's walking around with a Zippo. Even Microsoft is managing to cash in on open-source, not by throwing open the gates and figuring out the details afterwards, but through a deliberate strategy of making Windows work better with open-source like PHP and Sun's MySQL database.

In measure of how far Sun's open-source strategy has failed not one of three organizations in Sun's core Wall St constituency attending lat month's Open-Source Business Conference said they were running Sun's touted Fedora clone OpenSolaris. Those companies were Bank of America, futures and options house the Chicago Mercantile Exchange and Wall St IT services specialist Fidelity Information Services.

At the best, OpenSolaris is penned up in the labs where it's used to benchmark hardware performance by the Mercantile Exchange. And if you think that bodes well for sales of more Sun-only servers in the long run, think again. BoA said while Solaris is its third-largest install base: "It's going to follow the migratory path to x86 that the industry is following."

Despite this, Sun's senior management still thinks projects like OpenSolaris are actually worth something. Bloomberg reported Sun's board: "Contended IBM wanted too much control over Sun's projects and employees before the deal closed, without providing guarantees that the transaction would be completed if it faced delays such as antitrust review."

If this is true, it sounded like Sun wanted to graft itself onto IBM and drag it down too.

However, IBM operates in the real world of profit and loss, and sources told The Reg categorically that IBM failed to get a satisfactory answer on which, if any, of Sun's software makes money.

The result was IBM staffers going through Sun's books and its portfolio couldn't recommend keeping any of Sun's software assets beyond what we reported last week - MySQL for systems, Java for licensing and continuity, and Solaris for the services business. It looked like projects such as OpenSolaris and others were heading to a community graveyard.

If Sun is playing hardball with IBM in the hopes of getting a better price and firm guarantees, then it'll be a long time waiting. There's no reason for IBM to buy any of the software projects Sun's attached so much importance to. And that will mean staff cuts.

Even Sun knows the reality - it's just in denial about the scale. In recent months Sun has had to cut staff involved in marketing and engineering on OpenSolaris and desktop Java as part of planned redundancies.

Only if Sun accepts the full facts, and quits playing the kind of Silicon Valley game that has given Web 2.0 services like Digg ridiculous assumed valuations based on nothing more than number or users and potential future revenues can Sun's own future resume in earnest, with IBM. ®

The smart choice: opportunity from uncertainty

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