Struggling Sun faces difficult choices about future

Vendor may have to shed business units to survive

Bad times just keep getting worse at Sun Microsystems, and the vendor may face hard choices about which parts of its business to keep and which to shed.

Two weeks after reporting a US$1.7 billion quarterly loss, Sun announced on Friday that it would lay off 15 to 18 percent of its workforce.

It was seen by analysts as a necessary step -- but by no means a cure-all for a company that has been losing money and credibility with investors since the bursting of the dot-com bubble in 2001.

"I just think they had little to no choice," says The 451 Group analyst Jay Lyman.

Lyman speculated in a report several months ago that Sun might be acquired, saying that "Sun's sunken stock price creates a relative bargain considering its roughly $4 billion cash on hand, sizeable intellectual property and patent portfolio, and of course, its respected technology and products." Other analysts have questioned whether potential acquirers such as IBM or HP would even want to buy Sun. It's hard to think of a vendor that would shell out cash for Sun's servers, storage and open source software businesses all in one fell swoop, says Enterprise Strategy Group analyst Brian Babineau.

One common belief is that Sun will sell off portions of its business and focus on those that it believes offer the most chance of long-term success. When Sun announced workforce cuts last week it also detailed a reorganization of business units that reflects a commitment to open source software, an area Sun has a strong foothold in through ventures such as OpenOffice, OpenSolaris, MySQL and open source-based storage.

But several analysts say Sun still hasn't chosen a specific enough focus. "Is it a hardware company? Is it a software company? Is it an open source company?" Lyman asks.

Babineau believes that Sun has to sell part of the company, but it's hard to say which one.

Based on what they report on Wall Street, it's hard to tell what's making money and what's not," Babineau says. "They've been very bullish on their storage business. That generates positive cash flow. I think that really could be funding the rest of their business at this point."

A vendor in Sun's predicament could sell off a loss leader and focus on remaining businesses that generate cash flow, or sell one of its more profitable businesses to gain a one-time cash infusion that can be invested in remaining assets, Babineau says.

Join the PC World newsletter!

Error: Please check your email address.

Tags Sun Microsystems

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Jon Brodkin

Network World
Show Comments

Essentials

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?