Wednesday, November 14, 2007

A Hypothetical Sun Microsystems – Unisys merger

It has long been observed that though Sun Microsystems comes up with superior technology, it has been unsuccessful in monetization. Solaris is now open-source, as is Java. Of course, this has been hugely beneficial to customers and other vendors building providing valuable solutions using these technologies.

Sun's struggles in the recent past and jugglery with stock symbols (they changed from SUNW to JAVA), and a recent 4-1 reverse split have largely been "busy work" for the financial mavens, when a merger or acquisition would make more sense. There are obvious weaknesses (see chart bottom), that could easily be removed by acquiring or merging with the right partner.

Sun's bet on giving away software (that can be installed on any hardware), but charging a premium for their servers doesn't make a lot of sense – SPARC based servers are typically 3 times more expensive than comparable white-box servers to purchase, and the total cost of ownership is still higher. In order to extract a premium for their servers, Sun focused on TCO by including data center build-out costs – in their Black-box offering. The Black-box offering, may certainly make sense for many computing-intensive firms, but this strategy can largely be replicated using commodity hardware by other vendors like HP.

Meanwhile, another vendor, Unisys, has evolved from primarily manufacturing proprietary hardware to becoming an expert in consulting, systems integration and data-center build outs. Unisys' professional services and consulting expertise are complementary to Sun's superior, but open-source technology offering, and it may make sense for some kind of Unisys – Sun partnership. M&A with other hardware vendors is nothing new for Unisys Corp, which was formed when Burroughs and Sperry merged in 1986.

A SWOT analysis of both companies is given below.

Unisys' strong consulting and system integration relationships and its expertise in high-performance computing is a great complementor to Sun's high-performance computing infrastructure and software. In addition, Sun's xVM family of products - which includes a bare-metal virtualization platform based on Xen and corresponding tools to manage a grid of computing resources - CPU, memory and storage, will benefit strongly in adoption due to Unisys' established data-center build-out and management expertise.

Although Unisys resells Sun products, a deeper relationship, where Unisys services are bundled together with Sun data center solutions, may be advantageous to Sun.

As the virtualization bandwagon starts rolling by - with Oracle and other players announcing their own bare-metal VMs, this may be a good time for these companies to consolidate, and provide a much higher value service to their customers.

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