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Friday, October 31, 2008

Sun looses 1.7B, Time for Apple-Sun merger?

The merger of Apple ($AAPL) and Sun ($JAVA) has been rumored for 20 years now. It is an Apple ($AAPL) fan boys' wet dream! The arguments for and against it has long been many. Both are Hardware-Software companies. Both have been in competition. Ok, somewhat in competition since NeXT (another Steve Jobs company that was merged with Apple during his Second Coming) was the one really in direct competition with Sun. Heck, a long time ago, even everyone's favorite cranky geek John C. Dvorak had asked the question, Is Schmidt the set-up pitcher for an Apple-Sun merger.

The New York Times reported Sun lost 1.7 Billion dollars and is leaking. The Street thinks it is a problem child that has a lot of potential but little in execution. Sun developed and licensed Java--- the software that runs most mobile phones and other embedded technologies. It owns Solaris--- an operating system for Server space and part of that technology stack is an awesome, advanced 128-bit file system called ZFS, coveted by everyone from Apple to Linux fan boys.

Sun also owns MySQL--- an open source database company that markets the open source database with the same name and which is used by nearly every geek, and blogger in the world and not to mention enterprises small to large.

We've not even begun to look into their hardware stuff. Sun is also a player in the high computing business, specifically the high performance computing genre.

Sun's market cap is at nearly 4 Billion. Awesome hardware and software assets. Some of the smartest engineers in the world. Apple taking control of ZFS, taking a footstep into enterprise and that engineering talent--- paying 6 Billion for it would be a steal.

ZFS could be a boon for Apple's XServes and media file clustering offering.

The argument against such an acquisition are as myriad and compelling as the arguments against it. Buying it means taking a bit of that cash out of the bank and investing it in a company that, well hasn't performed as well. It isn't even in Apple's long term interest to focus on enterprise software in such deep fashion and could throw a monkey wrench on immediate business. Apple is a huge company that operates efficiently because it thinks like a small business and is focused on the pro-consumer market.

The higher-end enterprise business is just an after thought for Apple.

Before the Second Coming of Steve Jobs, it was Sun, rumored to buy Apple. A merger may or may not be in the works. IBM and Microsoft could very well profit too by buying Sun. IBM isn't in this kind of buying business and Microsoft acquiring Sun would be like them acquiring Yahoo. Google too could do it--- but Sun's business isn't really their own even if Schmidt migrated from Sun.

As Dvorak pointed out so long ago, Schmidt does sit on both Apple and Google boards and could be the point man for merger talks between Apple and Sun. Furthermore, Dvorak wrote and is still applicable today:
And the big change in Steve Jobs has to be noted. In doing the deal to merge Pixar with Disney (DIS:25.33, +1.36, +5.7%) , thus making him the top Disney shareholder, Jobs may have gotten the M&A itch. Could he do a big deal again? Is he now thinking he could become a dealmaker?
He has to feel good about that last deal, right? He'd feel even better doing this one so close to home.
The risk--- considerable and the rewards could be great. Buying Sun could be just as important as acquiring NeXT or could be the knife that strikes Apple deep. Is Apple interested in an alliance with Sun, given current market conditions and given their talent for focusing on one thing at a time that has served Apple so well in the last 10 years?

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