Slicing up Sun

Slicing up Sun

Summary: 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.

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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.

Click on the "Read the rest of this entry" link below for more.

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 now knee deep in and 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.

Topics: Storage, Hardware, Open Source, Oracle, Processors, Servers

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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31 comments
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  • Dell seems a better fit.

    If any company could make money on Sun's current products, Sun itself is the most likely to do so. That Sun cannot produce profits means that the buyer(s) would not be interested in continuing what Sun is now doing.

    Sun's most important assets are thus the talented people who have not been laid off and the IP which has not been given away.

    Dell is changing its traditional approach, most apparently in its use of retail sales locations. Another plausible change is adding a greater ability to design its own products, something which Sun staff could likely do well.

    Dell also has comparatively little investment in software, so donations to "the community", mainly IBM but other beneficiaries of Sun's largess as well, would not be disruptive.

    Add to that the cross-ownership and recent cordiality with Michael Dell and it seems Dell should be considered the front runner.
    Anton Philidor
    • My best bet is IBM or HP

      IBM or HP most likely would be salivating for converting Sun's (notice no more $un since they are nearly broke) customers to use their own wares in exchange for a 'conversion' tax.
      Unlike Dell they also know something about developing software, so that would make them a better fit.
      M$ would probably pay big $$$ just to get Java rights but it is very afraid of the antitrust consequences.
      Linux Geek
      • Buying a customer list?

        Any merger has the potential difficulty of current customers leaving because of instability or mistrust of the new owners. If those new owners also require a change from Sun equipment, as you suggest, then leaving becomes more likely.

        So the customer list may prove less valuable than it now seems.


        Also, if the potential buyers already have a sufficient number of talented designers and a large amount of IP, then Sun may have little to offer.

        Companies want to fill weaknesses, not duplicate strengths with acquisitions. So Dell would obtain a bigger advantage than IBM and HP.


        Microsoft wouldn't be too interested in obtaining Java, I expect. The software has been open-sourced and Microsoft would have to battle IBM for control.

        And the company already has .Net.

        This is another example of companies not wanting to duplicate strengths by acquisitions.
        Anton Philidor
        • a lot more than that

          it is not about a list but rather providing a 'roadmap for migration' to a captive audiemce.
          That sonds like BS but it's worth big $$$ when the customers are wary about support cheasing for their system.
          Don't expect to see many Sun systems being marketed or any new development for Sun's technologies.
          M$ would still want to offer it's own flavor of java just to muddy the water, not that it has big plans for it.
          Linux Geek
      • That would be the end

        Anyone remember DEC? How about Compaq? You probably recall they were bought by HP.
        cornpie
        • that's the whole ideea

          liquidate Sun while preserving the contracts and ca$h cows.
          Linux Geek
        • Rumour has it...

          ...that Compaq bought HP using HP's money.
          914four
    • Agreed

      But I don't think that Sun will be sold...
      Burana
      • it will be sold unless it becomes profitable shortly

        being a public company they don't have the luxury for developing a long term plan.
        Just look at Yahoo!
        I think Sun should bring back Scott Mcneally and start a new vocal assault against M$ before it fades into oblivion.
        Linux Geek
        • Or it could go private.

          Sun has enough cash on hand to buy back all of it's stock at current market value and still have some left over. I wouldn't discount this option, according to J. Schwartz they have over US$ 3B in the bank.
          914four
      • Cross-ownership is significant

        The company which is a major Sun shareholder also has a substantial number of Dell shares, and it has announced an intention to open discussions with 3rd parties about Sun.

        Management won't wish to sell, but dissatisfaction is likely strong enough that a real offer would be taken seriously.
        Anton Philidor
  • Fujitsu get enterprise biz, everything else ...

    will probably be picked up for a song by private equity who will fire 9 out of 10 people and milk residual revenues for the return on their investment.

    There are going to be a LOT of unemployed developers for the next 3 years, so maybe open source will make some big leaps forward in functionality and usability since these guys won't have much else to do in their spare time.

    Oh I forgot; Dell picking up any part of Sun would be like a cement life-jacket for them. Completely distracting with no value add in the short term.
    terry flores
  • How about Red Hat?

    Red Hat has been taking customers from Sun shops for years. The reason Solaris was aggressively moved to x86 was because Linux/x86 performance and cost was a significantly better value than SPARC/Solaris. Red Hat expects a great deal of revenue to be generated from JBoss and having more influence of Java's direction would be a boon. They've tried to create a database product in the past, so MySQL would be a good fit. It would supplement their sales and enterprise support staff with excellent, skilled people. Manufacturing hardware is the only major sticking point, because like Microsoft, they want to be hardware agnostic and not directly compete with any of their OEM partners. SPARC/Solaris on going support is a issue, but Fujitsu would be an obvious choice for dumping that part of the business.
    jcschweitzer
    • Can they afford it? Aren't they going to end up for sale too? nt

      nt
      T1Oracle
    • makes sense only for the software business

      Even the software business is not fully complementary to Red Hat products since Solaris is a competitor for Linux.
      The hardware has to be unloaded to a hardware company like Fujitsu.
      But at the end of the day, does Red Hat have the money to buy it?
      Or may be Sun should go to Washington and enter in the bailout line holding a cup. ;)
      Linux Geek
  • Why would making Java open source have saved Sun?

    The article says that the turn to open source was too little too late. But I wonder: would this move have made a difference? They would be foregoing income from Java, I would think...
    Roque Mocan
  • RE: Slicing up Sun

    I think they hoped to have more Java distributed with Linux servers, enabling distributors to build custom versions of JDK nad JRE. I don't know did it happen or not. All I know is that I've never seen any custom built JDK's or JRE's running enterprise applications. People in the enterprise trust Sun, and they will continue to do so.

    Besides, true GNU fanatics believe that they could replace Java with Python or PHP, so they tend to avoid it.

    All in all, I believe it was, generally, waste of time and money. Java was just as good for me even when it was "closed source".

    Moving towards Open Source will make Solaris more similar to Linux distributions, because it will include same applications and interfaces. Red Hat and Novell are already dominant in that market.

    There is one IT area left uncovered. Cheap (but not free) workstation and consumer oriented, UNIX based OS, which would not have problems and license limitations that would prevent it from including proprietary software and drivers. Maybe Sun could colaborate with PC-BSD team.
    trenchsol
  • RE: Slicing up Sun

    Sun is an example of how paranoid anti-Microsoft mania can destroy a company. Back in the mid-90s, Microsoft made an internal version of their OS for the SPARC processor. Sun, from reports I read back then, vowed to change their hardware with each new computer hardware platform, to break NT.

    Sun could have cooperated, and sold a lot more Sun hardware to those folks who wanted NT and later Windows server OSs (that is called "the majority of servers" in lay language).

    Sun could have cooperated with Microsoft when Microsoft improved the Java virtual machine on Windows, but choose to spend exorbitant amounts of money on lawyers for needless suits. There would be no C# today if Sun had cooperated for their own benefit, because .NET users who like C# would be using Java on .NET and Microsoft would have had no reason to create C#.

    My point is that Sun, going back over the last 12 years, could have made smart business decisions and cooperated with Microsoft and made more money and sold more hardware and software. Instead, they chose to give in to anti-Microsoft paranoia, their own arrogance, and drag a good company with good products down to the state they are in today.

    Sun shareholders should hold the management responsible for these foolish choices.
    MSBassSinger
    • Java would have went the way

      of the dodo if they allowed Microsoft to develop a custom version for Windows. The appeal of Java was the possibility of it being cross-platform. If a custom version of the JVM was created for Windows, you would have just gotten another inferior version of C/C++. Each app written would have to be compiled for each platform it ran on. Why compile to a virtual machine when compiling to native ml would speed up the app? Also, considering Microsoft's reputation at the time, Sun had a good reason to be wary of any deal with Microsoft. Microsoft would have developed C# or another Java like language regardless of whether Sun had cooperated or not and Sun would have went the way of Stacker when Microsoft offered drive compression with DOS.
      alaniane
      • Not likely

        Assuming Sun, at the time, had leadership who knew how to manage a business, they could have negotiated cross-licensing agreements so that Java could have advanced and been much improved by assimilating the better designed .NET framework.

        Java never really caught up to .NET (for example, Java still lacks properties and events, which even VB6 had). Sun would have been able to work with MS on creating a cross-platform .NET set of libraries that are worth using. Mono still isn't there yet. Sun would have had the funding to make the UNIX versions of .NET complete. Microsoft and SUN working together could have made .NET written in Java that was truly cross-platform. MS would have benefited by having both VB.NET and Java that were cross-platform.

        Java still suffers from being a resource hog, and dog slow comapred to .NET.

        Microsoft's JVM was much better than Sun's Windows JVM. Microsoft, having much more experience in software than Sun, could have done much to make Java better. While Java is usually the best choice on UNIX machines, Java is the last choice on Windows machines (desktops, app servers, web servers, etc.). Java takes longer to develop an application, runs slower, and takes more processor and RAM than developing in VB6, VB.NET, or C#. I've programmed in all 4, and Java is still behind the curve.

        Sun's knowledge of the UNIX world and hardware, and Microsoft's ability at the time to make software development tools better than any other, could have been a winning combination for both companies.

        I go back to my point that anti-MS paranoia at Sun (and to an extent, in the UNIX world) has, over time, led them down the path to the current state of affairs.
        MSBassSinger