Takeover Fever: The Apple-Sun saga

Sun Microsystem's days as an independent company may be limited, very limited, if the reports by the Wall Street Journal and others are correct; this time IBM will be the suitor. But throughout Sun's long downhill slide, there have been many back-and-forths with Apple, deals that many saw at the time as perfect fits.

In his Between the Lines post on why the latest deal with Big Blue makes sense,  Larry Dignan says that the "only real debate was whether Big Blue would acquire Sun in parts or as one sum."

That piecemeal vs. wholesale debate was also evident in the more than 20-year history of Apple and Sun could-have-been mergers and buyouts. Here are a few slices of the timeline:

In a 2006 Register interview,  Sun cofounder Bill Joy said there were some 3 mergers between Sun and Apple, to create what the story called "Snapple." One deal almost happened when Sun tried to move Apple onto its RISC-based SPARC processor around 1987. (IBM and Motorola won the RISC case with the PowerPC, and Apple joined up to make the AIM alliance.)

"As far as I know we also almost bought Apple once," Joy said. "We almost merged with Apple two other times."

Many Silicon Valley observers have long seen links between Sun and Apple. Both companies make slick, pricey hardware and are counter-punchers in their respective markets. They also have charismatic CEO figures and strong anti-Microsoft streaks.

In addition, the story showed Joy's less-than-far-sighted vision for the iPod as he was flogging Sun's "it's the network" party line.

Snapple, however, would have needed to work hard to convince McNealy of the iPod's long-term merits. McNealy has an iPod today but never uses it. In addition, he thinks the device is quickly going the way of the Audrey.

"There's a pendulum thing where stuff is on the client side and then goes back into the network where it belongs," McNealy said. "The answering machine put voicemail by the desk, and then it went back into the network."

"Your iPod is like your home answering machine," McNealy said. "I guarantee you it will be hard to sell an iPod five or seven years from now when every cell phone can access your entire music library wherever you are."

Well, sure. Unless your iPod is your cell phone.

FWIW: The MP3 market share for iPod in December was still over 70 percent. The iPhone held an 8 percent share of the smartphone market, selling 13.7 million units in 2008.

Next Page: Solaris: The new Mac OS? -->

In 1995, Apple and Sun were in direct negotiations for a buyout. Sun wanted access to Apple's consumer base and Apple was looking for help with its next-generation OS problems.

The deal eventually fell through in 1996 when Apple posted a $69 million loss for the holiday quarter and Apple was forced to restructure. This was, of course, before the return of Steve Jobs and the NeXT brigade to Cupertino.

In the January 22, 1996 issue of MacWEEK, associate editor James Staten (who later worked in Sun's storage division), laid out the case for Sun's takeover of Apple:

Grafting the Mac interface onto Solaris would create a high-powered OS that is much easier to use and gives Mac users access to a truly threaded, multitasking, multiprocessing OS with protected memory spaces. The best part is such a face lift already exists: Macintosh Application Environment for Solaris is said to be doing very well for Apple and Sun.

While a complete merger between System 7.5 and Solaris would be far off, a two-tiered attack similar to the one Microsoft Corp. has with Windows 95 for the low-end and Windows NT for the guru would be a natural one.

Plus, like everyone else who refuses to pay homage to the Digital Zeus atop Mount Redmond, Sun can see the distant sails of the Windows fleet as it begins to encroach on Sun's territory.

Nabbing Apple would give Sun a complete product line covering the first-time buyer on up to the high-level scientist. A united front of Sun and Apple would provide users with a best-of-both-worlds solution that runs on Intel, PowerPC and SPARC-based (at least in the short term) machines from a variety of hardware vendors and offers a unified solution and migration path for users.

Even Sun and Apple's market strengths are complementary. Apple has a sizable share in the education market; Sun has a strong presence in the higher-education, engineering and scientific fields. Apple is a force in the publishing and multimedia markets, while Sun provides high-end publishing, video and 3-D modeling solutions. Both companies offer strong Internet platforms.

Sun would also pick up a customer base of 22 million Mac users -- a big jump from the 2 million in its Rolodex today.

Gaining Apple's pioneering technologies such as QuickTime and QuickDraw 3D would help Sun in its fight with Unix competitor Silicon Graphics Inc. Plus, the company would be happy to pick up the multimedia, television and film production customers Apple has.

Sun's financial resume as a suitor is stellar. It has more than $1 billion in the bank and virtually no debt. Its products carry a high margin, like Apple's used to, and Sun has had more time in the saddle with its licensing strategy and might be more willing to pass the low-end hardware business to clone vendors.

One snag makes this merger little more than wishful thinking. Sun lacks a positive track record selling to the mainstream market. Then again, Apple hasn't figured this one out either.

How much of a gap in understanding usability was evident from a reader letter published a couple of weeks after Staten's article:

Sun doesn't shine I could not let the article by James Staten "Here comes the Sun" (01.22.96, Page 3) glide by without challenge. He says that a Sun Microsystems Inc. takeover could be a good thing for Apple. In my opinion a Sun takeover of Apple would be disastrous.

I recently had need to purchase a loaded SPARCstation 20/61, which I assumed would come with Sun's Solaris operating system. Wrong-o. When I called to inquire how I could get the OS, I was told by the salesman that I should try to get it from users at my location.

Upon complaining to various officers at Sun about this distribution method, I received a call from a district sales manager who explained that her company felt that most individuals would not use the Solaris CDs and that the company did not wish to waste money distributing them. Even after I asked her if I could have the CDs, I never was able to get them from Sun. I did finally get Solaris from an acquaintance and, although it is very Mac OS-like, I find there are many things about it that make it difficult to use.

As bad as Apple is, I'll take it over Sun any day. Sun ownership of Apple may yet come to pass, but if that happens, Sun will gain not the 22 million Mac users enumerated by Staten, but only 21,999,999.

Daniel R. Rosen New York State Department of Health Albany, N.Y.

Who needs discs when we have the network, right? Dan just wasn't down with the Sun meta message.

Neither was Apple, which picked NeXT for its Unix foundation, not Solaris. However, a number of Apple interface scientists found their way across the Silicon Valley to Santa Clara.

Next Page: McNealy and Apple's management turmoil -->

In a January 29, 1996, New York Times interview with Sun's chairman Scott McNealy, the case for Sun's buyout of Apple is mentioned briefly:

But it is to fend off challenges to Sun's existing Internet business and expand sales that Apple begins to look appealing. Apple has a surprisingly strong position in Internet servers, computers that distribute Net data. Many of the graphic artists, World Wide Web site creators and other Internet designers work on Apple computers. And Apple has millions of loyal customers.

For the future, does Sun need an Apple-like consumer presence? "Java already gives us a consumer presence," Mr. McNealy replied.

That is true, but only up to a point. Java does not give Sun a presence in consumer hardware, which Mr. McNealy has long sought. And he is a firm believer in hardware.

Then McNealy offered his well-worn auto-industry analogy that compared the OS to a car's transmission, its processor to the engine, applications and user interfaces to the dashboard, and network connections to tires.

He then predicted that the industry would boil down to 3 integrated computer companies just like Detroit's Big Three. He said these names would be Sun, IBM and a combo of Microsoft and Intel. (Of course, Google wasn't in the picture: Google Chairman and CEO Eric Schmidt was then Sun's chief technology officer.)

Apple wasn't on anyone's list back then, except as a buyout candidate.

In a MacWEEK article published on the same day in 1996, Apple's management was seen to be in chaos.

Just a month ago, the prospects of Sun Microsystems Inc. buying Apple seemed as likely as Bill Walsh returning to the San Francisco 49ers.

According to sources, Apple has been in discussions with Sun since October, and representatives of the Mountain View, Calif.-based workstation maker were frequently seen visiting the executive wing of Apple's Cupertino, Calif., headquarters.

However, MacWEEK has learned that, as of press time, Apple and Sun are not close to signing a deal, much less setting a price for the stock. In fact, despite published reports, even relatively simple matters, such as which parts of Apple's business Sun would be interested in acquiring, have not been settled. Sources close to the company said Apple is continuing discussions with several suitors and potential strategic partners and that no option, including remaining independent, has been excluded.

A former Apple executive said top management had been overly confident that a deal with Sun was at hand and failed to develop a complete restructuring program in case the deal fell through by the end of 1995.

Apple's $69 million loss last quarter set back the Sun negotiations, and Apple had to scramble to restructure, sources said. The result was an incomplete plan.

In the same issue was a story from the stockholder's meeting where stockholders called for the firing of CEO Michael Spindler (known in the halls of MacWEEK as "Diesel Mike."

Meanwhile, [Apple Chairman Mike] Markkula declined to comment on reports that Apple would be acquired by Sun Microsystems Inc. of Mountain View, Calif., or any other company. But he did say, "Apple is not for sale."

However, sources close to the company said that not being for sale simply means the board has not put Apple on the auction block. As has been true for several years, the company continues to have discussions with any serious bidders, and in times of turmoil, suitors become more plentiful.

Several weeks later, Spinder was out, replaced by Gilbert (Gil) Amelio, who had turned around National Semiconductor.

In March, Mark Hall, then MacWEEK's editor in chief, offered another take on the Apple-Sun spin. He had worked at Sun a decade before and framed the story around the battle against Wintel. Here's a bit of his opinion piece:

Obviously, the rumor about Sun's acquisition of Apple riveted my attention back to my old stomping grounds. It brought back the memories of a time, back in 1987, when the hallways were reverberating with rumors about Apple's "imminent" takeover of Sun, paralyzing many and distracting the rest. This year's version, while stood on its head, gripped Apple in the same way. Sun recovered. So will Apple.

But Sun's relationship with Apple is more complex than the merging balance statements that float in Scott McNealy's mind. And that's what has kept me interested in Sun.

First, at the place where all things seem to meet, the Internet, Sun and Apple compete as the top two server vendors. Plus, there's the third-party products that bridge the gap between Sun's Java and the Mac platform and the release of Shiner, returning Apple (with a whisper) to the Unix market with a competing OS to Sun. Further, the two companies are well along in the near co-development of a third version of the Mac Application Environment, and, most important, the two share an inordinate number of the same customers. The list of intersecting interests goes on from there.

This competitive symbiosis has not been lost inside Sun. Last month, well after the buyout rumors had subsided, one executive told me: "We need the Mac to survive. It is the only mass-market alternative to Wintel." He went on to describe how dull and pointless computing would be in a world completely overrun by Microsoft Corp. and Intel Corp. "Apple is essential to avoiding that fate," he said.

I got the impression from him and others that so long as it had the power, Sun simply would not allow the Mac or Apple to disappear. Having a muscle-bound ally like Sun will certainly help Apple in the difficult months ahead, especially if the two companies can build on their strategic objectives with a few more products for their large common customer base. Ultimately it will be successful products, not strategies, that keep Wintel at bay.

However, it wasn't to be. Sun couldn't provide any cover for Apple. In the summer of 1997, Steve Jobs declared the war with Microsoft finished.

“Apple lives in an ecosystem. And it needs help from other partners; it needs to help other partners. Relationships that are destructive don’t help anybody in this industry as it is today. During the last several weeks, we’ve looked at relationships. One [relationship] stood out as one that hasn’t been going so well, but has the potential to be great for both companies: Microsoft,” Jobs said.

Read more about Apple vs. Microsoft in Better living without MS Office

Next Page: Apple-Sun Merger 2006 style -->

The Apple-Sun buyout moves seem to come every 10 years. In 2006, there was another spate of rumors. When Google CEO Eric Schmidt took a slot on the Apple Board, some saw an inside move towards an acquisition.

In a Market Watch piece, pundit John Dvorak suggested that a merger was in the works. He said that after the Pixar-Disney deal, Steve Jobs had merger and acquisition fever.

He said that while Apple wanted to gain share in the server market, it didn't have the cred in the data center. A Sun move would make this a lock, according to Dvorak. He pointed a finger at Sun "superstar engineer and co-founder Andreas von Bechtolsheim."

Bechtolsheim, known to the locals as "Andy," was one of the first investors in Google and is a good friend of Schmidt and may be, in fact, behind the scenes promoting any Apple-Sun deal. Bechtolsheim, considered a genius by many, was brought back to Sun in desperation to reengineer its server lineup. There he developed the multiprocessor AMD-based line of systems that are cheap, reliable and very fast.

But Sun, having been pounded with losses and cutbacks, now needs help to market itself like in the good old days. The Apple cash flow, high profile and marketing savvy would do it.

Over the years Apple and Sun have traded sales and marketing people and integrating the two companies would be less troublesome than most M&A's since the corporate cultures are not much different. Also the product lines are very complimentary with only low-end servers having any conflicts.

When I run this concept past industry types the only pushback I get is from one observer who points out that Apple has never shown any M&A chops and almost seems adverse to deals like this. That may have been true in the past only because the situation was never perfect enough to pull the trigger. There is no denying constant Silicon Valley rumors about Sun-Apple as well as Apple-3Com and other deals.

Really, the rumors were less about Apple and more about Sun by this point. This week enter the latest potential buyer: IBM.