Thursday, October 18, 2012

SUN, IBM: ACQUISITION TALKS COLLAPSE

Sun must ideally go back to the negotiating table with IBM; it will be tough for it to survive on its own

Having Sun in its kitty would have helped IBM position itself in the high end segment of corporate computing and in the nascent market for cloud computing services. As a matter of fact, IBM would have enjoyed a 65% market share in the Unix-based servers market and about 42% share in the overall server market (addition of 10%). However, IBM was not too happy with the close relationship that Sun shared with its arch rival Oracle and given the kind of market scenario, it would make no sense to pay more to get its hands on an ailing company. But the vibes from Sun were apparently not too optimistic. So what''s in store for Sun with IBM now walking out?

Currently the mcap of Sun, which has been criticised consistently by analysts for being a stodgy technology driven company that cared less for customer demands or market trends, stands at $4.97 billion (as on April 10, 2009). That was why the company never really recovered as the server market got commoditised with time. IBM was actually paying a $2 billion premium for the company, which is currently in the midst of terrible times. The ongoing financial crisis has led to a further weakening of demand for Sun’s high-end servers and it has lost a whopping $1.9 billion in the last two quarters of the current fiscal. Furthermore, the company has already handed out pink slips to about 2,800 employees to trim costs and it is feared that the number can increase if the situation does not improve in the short term. According to Richard L. Ptak, Managing Partner, Ptak, Noel & Associates, “The problem for Sun is also that its management gives no indication that they recognise the problems that the company faces, let alone understand or solving them." Many would argue that though the server business is being hit, Java still continues to be a star product for this company. However, in 2008, out of the total revenues of $13.8 billion, only $200 million came from Java. It is ironical, therefore, that the company changed its ticker symbol to Java from SUN at NYSE, thinking that Java would ultimately drive the company forward. As per Wall Street analysts, there are chances of revenue slipping further for the next several years, given the present scenario.


Source : IIPM Editorial, 2012.

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