my unix

Sun Microsystems is a venerable brand that symbolises the truly innovative breed of company that gave birth to the age of the internet. Since it’s birth as Stanford University Networks in 1982 Sun has delivered a stream of well engineered products both software and hardware that have driven the infrastructure behind the internet build-out, the financial industry, telecommunications and the military just to mention a few. As a strong proponent of open systems, and in more recent times, open source Sun has offered an alternate ideology to the proprietary ‘walled gardens’ offered by the likes of IBM and Microsoft.

During the hey day of the dot com boom Sun couldn’t pump out its Sparc systems fast enough and with the cash flowing in expanded its work force, inventory and real estate holdings in line with the bubble. When the dot com bubble burst so did Sun’s. Back in 2002 then CEO Scott McNealy said “It was clearly the most unjustifiable market cap ever for a hardware company,” ¹ of Sun’s stock value. Today Sun holds $3.121 billion in cash or marketable debt securities ² yet the market values the company at $2.34 billion ³. This is the markets way of saying your position today is totally untenable…somethings got to change.

In the past week there have been two respectable pieces written with regards to Suns position, one from The Registers Chris Mellor, the other from Suns own Tim Bray.

Tims position in short is this; pull back and focus on web infrastructure, drop the client side efforts and leave Apple, Microsoft, Google, Adobe et al duke it out.

Chris seems more intent on the concept of selling Sun all together or spinning off areas of the busines that don’t closely align with strategy.

The way I see it from the outside is this, it’s sell, spin or struggle

Sell

As mentioned by Chris in his piece the only serious contenders for an all out purchase of Sun are HP, EMC, IBM or Fujitsu. Looking at HP I can’t see they would pick up too much that they don’t already have except the tape storage and software portfolio and besides they’ve got their hands full digesting EDS right now. IBM really wouldn’t stand to benefit too much from the purchase as there isn’t very much Sun has that they don’t, perhaps complete control of Java…but that’s a lot of money just for that purpose. Now come the more interesting options:

• EMC’s product portfolio doesn’t overlap all that much with Suns and they most definitely have the cash to make the purchase. EMC is not known at all for having an open source bent so perhaps there would be cultural issues in combining the two – or perhaps they could do another arms length play a la VMWare.
• Fujitsu is another one that most definitely has the cash to purchase Sun, not to mention that they have worked together on the Advanced Product Line since 2003 ⁴. Call me old fashioned but the merging of an American company with a Japanese is likely to run into all sorts of cultural issues but the end result could see Fujitsu emerge as a truly significant competitor to IBM. Perhaps keeping the computing division more at arms length could pay off, particulalry with the kudos that comes with the Sun brand

Spin

Oroginally Sun was a hardware company, then it was a systems company…this might be presumptuous but I now see Sun as a software company that sells hardware. In reality when you are competing with the engineering might of HP and IBM on the high end and slim-margin operators like Dell on the low end you’re in quite a squeeze. Sure I can point to strong growth areas in Suns server business such as the CMT boxes but as we’ve seen in the Intel V AMD opera one hit wonders just don’t cut the mustard. This might seem sacrlegious to some but perhaps the best thing Sun could do right now is spin off the Sparc business and rebrand itself as Java Systems Group or something like that.

Struggle

The financial crisis turned recession hit Sun hard, Sun had way too many eggs in the financial services basket and is now paying the price for not managing that risk. With Southeastern Asset Management now owning ~20% of Sun’s stock ⁵ they’ll be pushing the board to creat long term value, I can’t see that the status quo is going to remain at Sun with the board now feeling the pinch. Whether Sun can even climb back over the 5 billion market cap in its current form is not something i’d like to bet money on at the moment.

Here’s to hoping that this iconic brand doesn’t fade away, without Sun the open source community would lose its biggest commercial backer and much of its momentum in the corporate world.