Original URL: http://www.theregister.co.uk/2009/04/02/ibm_doesnt_buy_sun/

What if IBM doesn't buy Sun?

Schwartz and McNealy exit would be on the cards

By Chris Mellor

Posted in Servers, 2nd April 2009 08:02 GMT

Opinion Are we witnessing Sun's death rattle with both CEO and chairman of the board poised to walk the plank? That is highly likely to be the outcome if IBM does not buy Sun.

IBM is thought to be carrying a kind of due diligence on Sun as it ponders buying the company - but is it really thinking about buying Sun? If it isn't or if the exploratory look comes to nothing, what happens to Sun?

What we actually know amounts to very little. The Wall Street Journal printed a story based on information received that IBM was thinking of buying Sun. IBM said "no comment" as did Sun. Neither company denied that acquisition talks were taking place.

Then Intel CEO Paul Otellini said Sun had been shopping itself around to several potential purchasers. Again Sun did not issue a denial. Crucially Otellini has not denied he said this or altered what it is he said - he believes Sun has been hawking itself around potential purchasers.

What do the WSJ article and the Otellini comment tell us? They indicate that Sun's senior management doesn't believe Sun can prosper on its own and needs to be taken over. The widespread shopping around of Sun by the Schwartz-led management team tells us all that the Schwartz team - and the Sun board - have no faith in Sun's stand-alone survival prospects. They don't see prosperity for Sun and its shareholders in that direction.

That team has been in charge for a few years now and has, intellectually, given up on taking Sun forward on its own. It has, we are all beginning to realise, failed; and by implication, Sun is a failing company. They wouldn't be trying to sell a successful company, and they wouldn't be trying to sell a company with good short-tem and mid-term prospects. They are trying to sell a failing and stalled company.

If IBM, having looked closely at Sun, walks away, that could be a kiss of death. No one else wants the company, it seems. Where does that leave Sun's customers?

They will have experienced the shock of realising that their supplier could be finished and that it sees its own future in the arms of someone else, a competitor. Well, if their supplier thinks its future is better if it joins with a competitor such as IBM, then customers could well start thinking the same thing.

We could see - if IBM walks away from Sun, or if there isn't actually a Sun-IBM deal on the table - customers agreeing with what Sun management apparently clearly thinks of the company and its products, and acting on that belief by reducing their dependence on Sun.

We could see usage of SPARC servers steadily falling over the next few years. Customers could walk away from Solaris and also step away from Sun'sx86 servers. If Sun managers think the company's products and strategy are failing, then customers could take the same view and stop using the company's products.

What other conclusion could they come to? Sun's channel and direct sales teams will have an enormous uphill struggle selling against that sentiment; they will feel undermined by Sun's own management. Many will walk.

Schwartz at the end of the road

In turn, this could prompt senior management changes in Sun, with the investors and the board taking the view that current management has run Sun into a dead-end, a cul-de-sac, from which the only exit for them is a company sale. If the company sale strategy fails then, surely, the senior management team must walk the plank.

They have lost any and all credibility as a management team that could take Sun forward as an independent entity. By not denying that talks with potential acquirers have taken place, and by not countering Otellini's reported and unaltered views about Sun hawking itself around, they are implying that the reports are correct and that they have no strategy for Sun going forward but a sale.

How can they then create a go-forward strategy and energise the company, having demonstrated that they believe the best Sun future is in a sell-off?

A failed sale will be a tremendous indictment of their capabilities and beliefs and they must, surely, be toast in that case. They will have zero credibility, having failed to sell Sun. Off with their heads and, quite possibly, exit Scott McNealy as well.

The board has not issued any denials, and so it too is being complicit in the realisation by Sun's customers and investors that Schwartz and his team have been and are trying to sell Sun with board approval.

A possibility for Sun, if the putative IBM buy fails, is that it will split itself up and sell off parts of the company in an attempt to gain funds, increase shareholder value and finance restructuring efforts aimed at closing down loss-making parts of the company. This will surely be done by new management with a new board chairman and new board members.

If the buy fails and the existing senior management team and board try to carry on as before, with Sun an independent entity, then they run the risk of becoming a laughing stock with no credibility within or outside the company. All they will be able to do is hold a Sun yard sale as competitors plunder Sun's customer base and channels.

It will be an ignominious end for what has been a very, very fine company - one that deserves better. ®