Pierr Johnson

IBM and Sun: Simply March Madness?

In my view, the logic of this deal has always been suspect. Yes, the value of Sun’s technologies is understated by the market cap that its existing financial structure allows. Unlocking this value through some sort of dis-amalgamation of Sun’s legacy and forward-looking businesses should be Mr. Schwarz and Co.’s primary goal. But IBM could hardly be the key to this value creation, because it directly competes against Sun in most of this latter company’s core businesses. Would IBM support Solaris against its own AIX? Though most of us hardly think about Unix computing these days, it is critical to most of Sun’s customers. And why acquire Sun if you don’t need (and shouldn’t acquire) Sun’s Unix-server and StorgeTek businesses? Indeed, if IBM’s goal is to acquire and retire these legacy businesses, anti-trust enforcement will indeed preclude its completion.

My advice to Sun management: It is time to slice and dice. In a normalized economy, technologies and businesses must not be supported with the expense structures of bygone eras. With regard to your products, show us (as Michael Capellas once said) what’s under the Kimono. Once these businesses are more profitably and clearly reflected in financial results, higher valuations will follow. Once non-core middling’s are gone (or at least disaggregated), investors will accord shares the appropriate valuation.