5 posts • joined 2 Apr 2008
5 years hence? Snoracle Dominance? Hee-haw!
Two reader comments force me to respond:
"Take that model & apply it to MySQL & you have to hope in 3-5 years if allowed to develop it might do as Linux has..." - so the Commissioners are supposed to be fortune tellers? Using this logic, just about every acquisition or merger should be blocked because miracles might happen and some little idea today might turn into a game-changer someday in the future and letting a big evil company buy it now might change the future and stifle something. There goes the VC model...
"The point is that an Oracle/Sun combo will put Oracle in to (sic) a dominant position which can block competition." - This comment is simply not defensible. Yes, an Oracle/Sun combination will have good breadth. But they will not be #1 or #2 in any categories - except where Oracle is already #1. Sun is dying as a standalone company. Solaris (and UNIX) is in decline. Sun's servers have been losing marketshare since 2000. Sun's proprietary chip development is in tatters. Sun's storage revenue (most of which is just OEM) has been in decline. IBM makes more money from JAVA than Sun does. Sun has no credible presence in middleware. StarOffice is a money pit. Sun has been losing Wall Street business. Sun has been losing HPC business. Sun's revenue has been eroding. Sun's best and brightest have been leaving or RIF'ed. Sun has either no senior management (they've all bailed or gone fishing) or they have the worst senior management in high tech - take your pick.
Sure, a Cisco-Sun combination sounds exciting on paper. But Cisco and all the rest of the large technology companies all had a chance to consider buying Sun when it was shopped in H2 2008 and early 2009. Only two companies showed any interest and one, IBM, bailed. Oracle is Sun's (and Sun's customers and Sun's partners and Sun's employees and Sun's investors) last chance. If this deal is blocked Sun rapidly becomes Wang, Prime, Stratus, Cray, SGI.....That result will truly lessen competition.
@Actually it was a double jilting
In your post you stated: "Larry E was smart in not taking on Sun's liabilities." This statement is incorrect. Read the Definitive Agreement. Oracle is acquiring ALL of the assets AND liabilities of Sun and its various subsidiaries. This is NOT structured as an asset sale where only select product, IP, personnel and liabilities are purchased. It is structured as a 100% acquisition. Oracle is buying the whole enchilada.
So post close (and in the absence of subsequent transactions between Oracle and other parties, i.e. divestitures and asset sales by Oracle) Oracle will own all of Sun's customer obligations, channel partner obligations, vendor obligations, real estate obligations, supplier oblgations, legally binding (on a per country basis) employee obligations, etc., etc. Sun's contracts (both inbound and outbound) establish what rights of termination, revision, non-renewal, etc. Sun/Oracle might have based on change of control or "just because".
On the financial front,, Sun's stockholders and debt holders will be cashed out during the closing process so Sun's debauched shareholders will receive their pittance and debt holders such as KKR will be paid off.
If publicized reports are correct, IBM had two or three major concerns:
1) IBM was unwilling to give certain guarantees regarding the effort they would expend obtaining regulatory approvals on a worldwide basis. Sun's BoD (has there been a more useless BoD at a major technology corporation?) was justifiably concerned that numerous regulatory hurdles would be encountered that might nix the deal..
2) IBM was dissatisfied with the underlying revenue/profitability picture at Sun. Products and offerings that IBM was most interested in proved disappointing in this resplect. Hence the initial $10-$11 per share rumor turned into an $9.50 per share rumor.
3) the degree to which change of control provisions penetrated far down in the ranks of "Sun's management" (an oxymoron). Reports have circulated that such change of control provisions went as far down as director level. It wasn't JUST the unjustifiable golden parachute that would pay triple their annual compensation and 100% vest the holdingsof Schwartz and McNealy and various EVPs. No it was YEARS of severance due to managers well down in the ranks. If you do read the Definitive Agreement, you will find that Oracle appears to have negated such employee change-of-control provisions. It will be interesting to see how that pans out.
NOTE TO SUN BoD: READ THIS!
The article articulates many of Sun's systemic problems. The Sun BoD meeting on Wed should start with each member reading it. They might learn something.
The company has deteriorated markedly under the past three years of the Schwartz regime. It is shown in the revenue #'s, marketshare #'s, channel partner survey results, employee surveys, and most notably the share price of Sun which has declined 68.5% since Schwartz took over. Customers, employees, shareholders have all suffered. Of course, competitors LOVE Schwartz (I know, I work for a Sun competitor. He's the gift that keeps on giving.)
In the absence of a near term acquisiton of Sun, Schwartz MUST go - along with many of his incompetent overpaid staff and delusional cronies. Sun needs a heavy dose of a proven business leader and not an unproven dreamer.
@Christopher: You said: "The general tone of the post is negative....SUN does still turn over 14 Bilion Dollars a Year".
A minor point is that Sun's trailing 12 month revenue is 'only' $13.3B USD. And factoring in analyst estimates of the just completed quarter (end March) puts Sun's TTM revenue at only $12.8B USD. The major point is that Sun's organic (own) business has had negative revenue growth for the entire decade with revenue additions from acquisitions providing the only real uplift.
Sun Annual Revenues
- 8/05 Acquired STK: ~$2.4B TTM revenues
- 8/05 Acquired SeeBeyond: ~$167M TTM revenues
FY06: $13.07B (Less than Sun+STK+SeeBeyond)
FY07: $13.87B (Barely > Sun+STK+SeeBeyond)
- 2/08 Acquired MySQLL ~$50M TTM revenues
FY08: $13.88B (Zero growth Y over Y)
FY09: 99.99% chance that revenue is down significantly Y over Y
Profitability has been accomplished by OPEX reduction (RIF's, voluntary departures), Microsoft settlement, favorable component pricing, and shutting down facilities built on late 90's visions of unstoppable mega-growth. Top-line revenue growth has been a no-show for 10 years.
In mid-2006, Schwartz and Lehman said they should be fired if they could not achieve $10/share for SUNW. But that was BEFORE the 1:4 reverse split creating JAVA shares - so they were really touting their ability to achieve $40/share with their strategy. Sun shares touched $2.59/share a few months ago - a 15 year low. It's at $6.28 COB 4/7/09 and likely to fall much further. The strategy is not working and will not work. Schwartz concocted a clever ruse that has rewarded HIM and his staff handsomely.
Sun's BoD is complicit in this faillure. They have proven to be irresponsible and have abdicated their fiduciary responsibility. It is well past time for dramatic change for the sake of customers, employees, and long suffering shareholders.
Sun of SAM
Southeastern Asset Management ( SAM, for their funds and background see http://www.longleafpartners.com ) has a bigger problem than simply "making a quick buck" as suggested by a previous poster. If they are indeed helping drive the purported negotiations with IBM they have more than just a profit motive. Their motivation is to avoid a HUGE INVESTMENT LOSS on Sun.
If you read their recent SEC filing, you'll see that SAM's USD $2.1 BILLION investment in Sun - and the resulting 22.3% ownership position - is currently in the hole by $800 MILLION (using the March 24th closing price of JAVA of $8.06). That's a fair chunk of change even by Bernie Madoff or AIG bonus recipient standards.
In simpler terms. SAM's average purchase price for their 166 MILLION shares of Sun stock is about USD $12.91. So they need a buyout price of nearly $13 just to break even. So if IBM is really at the negotiating table, SAM has has no choice except to play the game of brinksmanship.
And they may be the ONLY entity looking out for the unfortunate outside shareholders in Sun. Certainly Sun's BoD has failed miserably. And based on Sun's recent (January 1, 2009) change of control filings with the SEC, Sun's executive team has little to fear from a takeover. Starting with Mr. Schartz and Mr. McNealy, and continuing thru the exec ranks, they will all be RICHLY rewarded for having trashed Sun over the past 2 years, 11 months and 1 day while Mr. Schwartz tilted at windmills.
While his other points can elicit interesting debate, Snafu Two suggestively asked:
"... But, seriously, would you buy NetApp shares today? You could - but I'd recommend you buy them "short". :) Thats the only way you'll make money on NTAP (already down from ~32 to ~20 in the last 6 months)."
Anyone who follows (or even worse owns) Sun stock will see thru this ruse. The facts are that Sun stock has performed just as miserably as NetApp stock during this period.
To make his point, Snafu Two carefully cherry-picked the 6 month high and low for NTAP. On October 23rd, NTAP hit a 6 month closing high of $32.06 USD. On March 31, 2008 NTAP closed at $20.05 USD. That represents a decline of 37.5%. To exaggerate his claim even more, he might have referenced March 19 when NTAP closed at $19.49 USD. That would represent a decline of 39.2% from the October 23rd high. However, if you take the "true" 6 month period of October 1 thru March 31, the decline in NTAP was "only" 24.9%.
So how does the performance of stock in that technically superior, open source, open hardware, sales-friendly, technological powerhouse known as Sun Microsystems (JAVA) compare to NTAP over these same periods?
October 23, 2007 to March 31, 2008 -34.7% -37.5%
October 23, 2007 to March 19, 2008 -34.2% -39.2%
October 1, 2007 to March 31, 2008 -31.8% -24.9%
Someone without an agenda might correctly ask "would you buy NetApp OR SUN shares today?" Neither company has rewarded investors (longs) during the past six months. They have both disappointed their shareholders.
Of course, we might discuss each company's 5-year performance up thru MArch 31st during which JAVA gained 15.5% and the lowly NTAP gained "only" 79.9%.
Enough already on the financial comparisons. The technical discussion is much more interesting and subjective.
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