Sun and IBM: The Wedding Is Off because the In-laws Suck

Rob Enderle

Sunday the proposed marriage between IBM and Sun hit the rocks and the groom, IBM, walked out of the church.


The couple had been having problems, which the media picked up as leaks. It appears the bride, Sun, has a family that couldn't keep a secret and had a tendency to share intimate details surrounding the couple. CEO Jonathan Schwartz, the wedding planner, is likely collateral damage, and the question is whether Chairman Scott McNealy, the Frankenstein monster of all bride's fathers credited with causing the breakup, will finally get the boot. He was the guy many believe was the reason Sun had to be married off in the first place.


Excuse the tabloid nature of my lead. But with leaks coming out regularly, creating what must be an insider trading nightmare for Sun and IBM and assuring that any potential Sun customer would head for the hills -- let alone any other prospective buyers -- you have to wonder what the idiot(s) leaking the information were thinking.


So what happens next for Sun?


Sun In Search of a Groom


The key stakeholders in a company, particularly a founder, can be just as damaging to a merger as the parents of a bride can be to a wedding. They may have the best of motives, but in an effort to improve the result, they generally can make a successful wedding or merger impossible. Yahoo had to go back and see if it can make a business out of the damaged company and really upset investors. Now Sun faces the same problem.


HP is in the process of digesting EDS and appears to feel it already has enough complexity to deal with in hardware at the moment. It dosen't need the internal conflicts that Solaris would cause and seems to be taking Sun's market share organically, anyway. Dell doesn't like big mergers and is more focused on the cell phone than the server segment at the moment. Lenovo isn't ready to make a run at IBM on servers and take the large hit on Thinkpads that would probably result. Cisco is going down the path of unique servers tuned for the network and positioned against the more traditional Sun offerings, making the acquisition counter-strategic at the moment for it. And while EMC was supposedly interested in Sun previously, it knows that the economic cost of such an acquisition might be a massive loss in market share for VMware if existing server vendors viewed EMC as a primary competitor, which would likely result.


Microsoft certainly could buy Sun, but getting through regulatory approval would be too painful and it has no use for much of what Sun actually has, suggesting Redmond would open with a vastly lower bid than IBM exited with. There remains a lot of bad blood between the companies.


In addition, Fujitsu is too risk-averse to entertain this deal for long, Acer isn't interested in enterprise sales at all, and that leaves private investment funds, which are mostly in hiding hoping for better economic times and less risky choices.


Can Sun Go it Alone?


Sun has been actively shopping for a buyer for some time, which is an indicator that its executive management does not believe the company can be successful long term. This does not necessarily mean the company will fail, but it does mean that the existing management team, believing that it will, would not be the best to guide it to a recovery.


So, at this time, the odds favor Sun failing, but that could change with a new executive team, and probably a new board, motivated to create a more positive outcome. It goes without saying that the new executive team and board would also need to be trustworthy enough not to leak critical confidential information. Yahoo is actually improving under its new executive leadership, though it is far from being out of the woods yet. Yahoo does showcase that, with the right new team, the perception that the company can only fail can be changed, whichsignificantly increases the likelihood of a recovery.


Until and unless these changes are made it is doubtful that Sun can either go it alone or execute a successful sale for the company.


Wrapping Up


Until Sun is either successfully married away or can reassert itself as an independent company, it will likely bleed revenue badly to the other players in the space. If you are buying from Sun, this means its sales team, if it isn't willing to already, will shortly be desperate for business and be willing to cut nearly unbelievable deals to get it. But it also means that such deals, at any price, have a significant unknown risk associated with them . For many, that risk likely will be unacceptable.

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