Saturday, April 10, 2004

Sun and Linux, Sun and IBM

My one year anniversary of leaving Sun is coming up in a couple of weeks, and the company has definitely come up with some interesting things to reflect on lately.

Sun and Linux

There is yet another massive reorg and layoff underway, with the promise that moving people around will fix things, but there is no response to what customers and analysts have been asking for years: What's Sun's Linux strategy? You ask five Sun employees this question and you get five different answers. In effect, there is no Linux strategy. Begrudgingly shipping Linux while touting Solaris x86 is not an effective strategy, and it definitely is not a market-focused strategy.

In the last year, Sun had the opportunity to become the leading Linux vendor for two reasons:

1. SuSe was for sale for $220M and Ximian for $20M. Novell bought both of these companies and went from a forgotten company to an emerging Linux star. Sun could have very easily used some of its cash horde to buy both of these companies and been in the same position. And it would have dovetailed very nicely with the AMD chip deal they struck.

2. But the biggest thing Sun had going for it was a full Unix System V license that it had purchased from AT&T in the early 90s. With the SCO lawsuit going on, Sun could have bought SuSe and been the only ones selling an unencumbered Linux. Instead, Sun chose to side with SCO and promote Solaris x86 over Linux and make glib comments about Linux's legal problems.

The irony is that Sun has to give the proprietary Solaris x86 away for free and still no one wants it, when instead they could be selling the open source SuSe Enterprise Server. It will be interesting to see how far down the road Sun will go with the Solaris x86 vs. Linux strategy and whether it will make a U-turn before it drives off a cliff. Sun has repeatedly stated that its future lies in higher level software like the Java Enterprise System and services - so why swim against the tide on the underlying commodity operating system?

Sun and IBM

I have long been curious as to why Sun has not been sold to IBM. I imagine that McNealy has refused this type of discussion to date, but clearly McNealy's strategy has been flawed with 12 consecutive quarters of decreasing revenue whilst competitors such as IBM, HP, and Dell have increasing server revenue. There is no doubt that the board forced him to lay more people off, promote a COO, and settle with Microsoft, which are all things that McNealy had said would not happen. A board with even the slightest sense of fiduciary responsiblity has got to be looking for an exit strategy at this point.

A couple of years ago, IBM bought Informix's database business for $1B in cash just to upgrade the customers to DB2. Sun's market cap is $14B with $8B in the bank, so it is only worth $6B. It has $11B in annual revenue. IBM trades at roughly 1.5x annual revenue, so a $26B offer ($18B plus Sun's $8B in cash) is an 85% premium for Sun AND is an accretive acquisition for IBM!

IBM could put a SPARC to PowerPC microcode translator in front of a PowerPC pipeline and have a faster processor for all of the Sun customers to upgrade to than anything on the Sun roadmap (in the early 90's IBM had an x86 to PowerPC microcode translator implemented in the never shipped PowerPC 610). Open source Java, put Solaris onto a Linux transition plan just like AIX, migrate the few software customers to WebSphere, and mission accomplished. And as an added bonus, IBM would get a full Unix System V license and clean up their SCO problem.

How sad it is that it had to come to this.