The collapse in value of Sun’s shares during the past 12 months is so comprehensive that it makes some bank shares look like shrewd investments in comparison.
The company’s share price has been heading progressively South for the past year, from $21.55 to as low as $2.60 — a staggering fall of more than 86 percent. This leaves the company valued at a fraction over $2bn — only half as much as it paid for its StorageTek tape storage business in 2005, and twice what the company paid for the open source MySQL database in January of this year. It’s not just the investors that are suffering, either: The company was forced to lay off almost one-fifth of its workforce recently, following a shocking quarter that culminated in the announcement of a $1.7bn loss. That’s a lot of money for a $2bn company to lose.
As a result, there’s lots of muttering going on at the moment behind Sun’s back.
The substance of the muttering can be summed up like this: Who will Sun belong to in 12 months time? Can it possibly continue to exist — either in its current form, or minus some of its assets?
The problem for Sun is that many former customers are choosing commodity hardware with Intel inside rather than servers with Sun’s processors, and running Linux in preference to any version of Sun’s Solaris. Indeed, it is finding it difficult to make money from any of its open source software, including Solaris, MySQL and Java. Sun changed its stock ticker code from SUNW (short for Stanford University Network Workstation) to JAVA last year to reflect what it believes is a higher brand awareness of Java than Sun. However, the programming language used on billions of other manufacturers’ computers and mobile phones has made its owner very little actual money.
“The number of people who know Java swamps the number of people who know Sun,” CEO Jonathan Schwartz explained on his blog at the time. “JAVA is a technology whose value is near infinite to the Internet, and a brand that’s inseparably a part of Sun (and our profitability).”
Well, I’ve got news for you Jonathan. Java may have a value which is near infinite to the Internet, but it sure as anything isn’t infinite to investors in Sun. The company’s cash pile is pretty close to its market capitalization, which means the market values its assets — which include the UltraSPARC processor line as well as StorageTek, and the Java, Solaris and MySQL software brands — at pretty much nothing while they belong to Sun. And profitability? What profitability?
So the big question is, could more value be unlocked by selling some or all of these assets to other companies? Andy Patrizio makes a strong case that Sun’s StorageTek and other hardware could be more valuable to EMC, while there’s also speculation that long-time partner Fujitsu or HP (buyers of Compaq and Digital, remember?) or even IBM could be interested in some or all of the company.
How likely is it that Sun will be taken over? It’s possible, but the market doesn’t seem to think this is in the cards — the stock price certainly isn’t reflecting that.
What about carrying on as it is? That doesn’t seem like a sensible option in the current economic climate and with the losses Sun has suffered recently. StorageTek, server hardware and open source software are simply not bringing in enough money.
So perhaps the most likely outcome is that Sun will try to realize some of the value it must think lies in its assets by selling some off and concentrating on a core business it believes it can grow and make money from.
The problem for Sun then is identifying which of its assets can form the basis of a core business that can make it profitable in the medium term.
If, in fact, there are any.
Paul Rubens is an IT consultant and journalist based in Marlow on
Thames, England. He has been programming, tinkering and generally
sitting in front of computer screens since his first encounter with a
DEC PDP-11 in 1979.
This article was first published on ServerWatch.com.