Slicing up Sun
Being employed by a large technology company and being a freelance technology writer has its pitfalls, one of which is from a disclosure perspective: I'm not allowed to talk about strategy and forward-looking statements regarding the company I work for.
The risk of making such statements is that one might commit the company to things that it wouldn't necessarily commit to, especially when one is not qualified or permitted to make such statements in the first place. So please allow me to state this right up front, before we get into the "danger zone" -- nothing I say should be interpreted literally, and my opinions do not necessarily reflect those of my employer's. Got it? Great.
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With that being said, I think there's a natural amount of armchair quarterbacking that has gone on in the computer and technology industry given the economic crisis that we're nowknee deep inand hurting badly from. One of those companies that has been front and center in the middle of this crisis is Sun Microsystems, which incurred massive losses last quarter, just cut 6000 jobs, and has been steadily hemorrhaging money for years, particularly in their enterprise server business. To quote Sun CEO Jonathan Schwartz from his October 31st blog entry:
"At a corporate level in Q1, Sun's revenue was down 7% year over year. Growth in our emerging products was more than offset by declines in our traditional, high end products. We were surprised by the magnitude of the decline, which reflected a dramatic slowing in the US and Europe, and the effects the credit crisis is having on our customers - across nearly all geographies and industries, but clearly concentrated among financial services companies."
None of this is news. Sun has been in trouble for a long time. While its gradual switch towards Open Source software and services has been admirable, it's too little, too late. It's simply a matter of time before the company's devaluation makes it an ideal acquisition target.
Right now, Sun has a market capitalization of approximately $2.36 billion. Given fluctuations in the market, and if we have a few more bad weeks and Sun has a lousy Q1 for '09, that could easily drive it down to under $2B, as its been fluctuating between $2.2B and $2.4B for weeks. In the month of November 2008, JAVA was the #10 most losing stock on the the NASDAQ, as reported by Motley Fool on Dec 3.
There are a number of companies that could afford to buy Sun entirely for $2B. I'm not going to speculate on who might have that much cash, but it's a pretty small list. However, it's unlikely that Sun would be purchased outright as a single entity -- several of its product lines directly overlap with that of its major competitors, so it is probably reasonable to assume that Sun is likely to be sold off in pieces, by lines of business (see 33MB PDF). My CNET News Colleague Dawn Kawamoto tends to agree with me on this thought process.
The two big pieces, Enterprise Servers and its accompanying services business are likely to end up in the hands of Japanese giant Fujitsu -- since Fujitsu already co-markets and manufactures an entire line of systems for Sun already and is the primary licensee of SPARC technology. Fujitsu is already a fairly sizable services player, and acquiring Sun's services business along with the SPARC seems to make sense. Storage and x86 systems are tricky, though. Fujitsu is also a very large storage player, and already manufactures their own line of x86 systems, the Primergy, so those products might not end up in their stable.
It's certainly possible that a vendor that doesn't produce systems but already has the other missing pieces, such as EMC -- might want to jump into the mix and grab Sun's x86 business and possibly even Sun's newly announced Open Source storage systems. That would allow the company to compete with IBM, HP and Dell, since they are already a very strong storage player, they own VMWare, and has an expanding services business already which is worth around $1.3 billion.
What remains at this point is Sun's software. Here, things are likely to get a bit more complicated and has a lot of potential for drama. Sun's software business would be valuable to a lot of companies, particularly any of which who have activities and products which are related to Java. Other software, such as Solaris, may only be of value to specific companies and might have a limited set of suitors. Fujitsu would likely want to own Solaris if they were to own SPARC -- but this is complicated by the fact that the OS has already been Open Sourced. Unlike organizations like Debian or Ubuntu, OpenSolaris isn't an independent, not-for-profit foundation, so it can't exist as a separate entity unless its new owner would allow it to exist as such or changes its license to GPL2 or GPL3. OpenOffice.org's LGPL status may cause it to fork away as an independent organization unless whoever inherits the StarOffice and OOo codebase handles the community correctly.
The same goes as well for Java, which is GPL and is likely to fork several derivatives once a complete Open Source JVM stack based on Sun's technologies is finished for release. There are already many clean room and free implementations, such as Google's Dalvik, but a "OpenJava.org" implementation is probably going to be the first thing on the community's mind when Sun breaks up.
Where I think things are going to get interesting and probably pretty dicey is with MySQL, which unlike a lot of Sun's Open Source products is released under the GPL. As a result of a Sun breakup or sell-off, the project could very likely fork back into an independent Open Source not-for-profit, with a commercial version owned by another software company. This is more than likely to occur if Oracle starts to lick its chops and Larry Ellison starts making menacing evil plans for world domination again.
Have you done your own armchair quarterbacking of how Sun is likely to get split up? Talk Back and Let Me Know.
Disclaimer: The postings and opinions on this blog are my own and don’t necessarily represent IBM’s positions, strategies or opinions.
