Burn Out

The IBM/Sun deal has broken up. Rumors are that IBM wanted to lower its price.

Sun, once one of the “four horsemen of the internet,” has been pummeled as recession-battered customers defer new tech purchases. Demand for servers has fallen for a year, and last quarter fell 14 percent. And Sun’s servers, technologically advanced, are expensive. A Sparc Server costs over $30 grand, and that’s without the software.

Like any star past its prime, Sun has two choices: it can burn out or fade away. A deal with IBM would have allowed the company to integrate its expertise into a larger, better financed rival-at the cost of jobs and control. But by walking away from a price twice its pre-merger level, Sun has told its shareholders that it would rather fade away than be swallowed up.

Nobody likes to lose control. But IBM may have been Sun’s last, best hope. HP and Dell have already said “No, thanks,” and Cisco doesn’t usually buy companies to turn them around. Instead of going out as a supernova, Sun’s board has elected to fade into a white dwarf.

Douglas R. Tengdin, CFA
Chief Investment Officer
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