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Summary:

Anil turned me on to Dan Wood, the programmer behind Watson utility and Karelia Software. Apparently, Sun which has bought his company for an undisclosed amount of money is mothballing the product. I feel for Wood, who worked really hard on the software, which was mercilessly […]

Anil turned me on to Dan Wood, the programmer behind Watson utility and Karelia Software. Apparently, Sun which has bought his company for an undisclosed amount of money is mothballing the product. I feel for Wood, who worked really hard on the software, which was mercilessly stabbed in the back by Apple which mimicked it in Sherlock. When Sun bought the company in June, I saw there was going to be a redemption. It was going to be called Project Alameda.

I am sad to say that it looks like Sun doesn’t seem to be focussing on getting the port of Watson released any time soon. Of course, this wasn’t the plan. The intention when Sun acquired the Watson technology was to have a port released by this time. But as all of us are familiar with how public companies behave when pressure is put upon them by Wall Street for profitability; it seems that the release of the Watson port is not on Sun’s critical path right now.

I read that comment, and I think that is just absolute and utter crap. Wall Street has nothing to do with it. Wood is being too polite to not lash out against the Sun management, which ranks second only to New York Mets in terms of skills. If Sun is letting Wall Street do back street driving then what the hell are McNealy & Company getting paid for? Sun has made a bad habit of blowing shareholder’s equity as if it was pocket change in Scott McNealy’s front pocket. How can you basically go from buying a company on June 29, and mothballing the main product less than three months later. Incompetence? Funny how their stupidity does not get any headlines in the mainstream media.

Some folks recently mentioned that Sun has made a comeback – its server share in second quarter 2004 is up 38.4 percent from the second quarter 2003. That is such utter crap. I found a Gartner press release which says that the company’s share of world wide server sales in revenues is up 2.9% for the quarter to $1.51 billion from $1.464 billion. Which means, either someone overstated or that the company sold more servers but made less money per server, which is not really a good thing. Comeback?

Sun wore sackcloth on Tuesday, as it begged an auditorium full of Wall Street data processors to try Solaris on the computers that Sun now sells with processors from Intel or Advanced Micro Devices. Customers can even get 50% off the price of Solaris, if they swap out of Linux. Sun says that its Unix is now cheaper than the freely downloadable Linux, after counting the customer support fees charged by such Linux distributors as Red Hat. That’s like selling the loss-leader phone without nabbing a subscriber, says Sanford C. Bernstein analyst Toni Sacconaghi. Even if Sun succeeds in gobbling up Red Hat’s entire share of the software market, Sacconaghi figures that it wouldn’t provide much of a meal. Red Hat’s revenues amount to about 3% of Sun’s $11.5 billion in annual sales. [Barron's Online]

Sun’s has a habit of blowing acquisitions: at the height of the dot-com bubble, they bought a company called Cobalt Networks, which almost single handedly invented the appliance server business. It also gave them a visa to Planet Linux. They blew it: they could not capitalize on the most powerful hardware trend of the late 1990s, and missed a chance to ride the Penguin. It might amaze you but apparently Cobalt Linux is still among the top three Linux distributions on the planet, and there are some folks in Japan who have built a great business out of building guess what: appliances based on Cobalt Linux. This was a $2 billion buyout: why wasn’t anyone fired for this balls-up? I could go on. I recently read that they are now planning to acquire Montevista Software, a microlinux company that is profitable. I fear for the chances of this little company. It is almost guaranteed that they are going to find a way to muck it up. Jonathan Schwartz mocks IBM on his blog, takes a dig at Nick Carr. Dude, those who live in glass houses don’t walk around in birthday suits.

  1. The other interesting thing is that Apple has been quietly entering the high-end enterprise field with their Xserves about 2 … 3 years ago? Their releasing their dual G5 configurations from IBM’s 970 chip (more info on that chip: http://arstechnica.com/news/posts/20040628-3937.html ) makes things even more interesting.

    Those babies are impressive bit crunching and churning machines. I was recently nerding around about them with a fellow Geek ( http://thisisfanzoo.com/blog/archive/2004/09/21/181.aspx#205 ) . I don’t think Apple gets the credit they deserve for their “humble” foray in the enterprise/server computing field.

    I could see these, along with the highly competitive market of 1U and blade x86/Linux solutions, quickly eat at their share of the high-end computing pie.

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  2. I would go so far as to say this habit of blowing shareholder’s equity on acquisitions that are then squandered is endemic to Silicon Valley. Sun, is, without a doubt, the worst offender. I could be remembering wrong, but I believe they’ve actually acquired 3 java application server vendors over the years, and yet still can’t compete with BEA or IBM. So they definitely have a long history of not being able to integrate any acquired company into the fold.

    More provocatively, I’ve always wondered whether Sun, with it’s tight connections with VC in the area, is used as a bail-out provider for local companies that are doomed to go nowhere. So, the VCs need an exit, and Sun buys the company. Everyone is happy – except anyone who owns Sun stock. Has anyone ever looked at this?

    Or maybe that it is just killing competition through acquisitions. I mean, why else would the buy Cobalt – a company that was going to attack them directly via low-cost, Linux-based servers? Did they honestly think they’d be able to talk out of both sides of their mouth about Solaris and Linux and not either confuse the hell out of people or just look like they didn’t have a strategy? Either way, it’s a bad path.

    One more comment on this trend: in the latest issue of Business 2.0, they highlight a bunch of small companies that were bought up. What struck me about all of these companies was the incredible high price they paid for them. $29m for Oddpost? Now, I love this company’s product, but even assuming they had $10m in revenue (doubtful – but someone correct me if I’m wrong), that’s 3x sales for a company that is essentially a bunch of great javascript/dhtml programmers. Could you go out and hire or contract to get the same functionality for a fraction of the cost? Does adding 10-20k (again, my guess, but please tell me if I’m wrong) in users really make that much of difference to Yahoo?

    Now I know this is a small purchase for Yahoo and will probably pay off longer term, but I can’t help but sit back and think “man, that’s a lot of money for that.”

    They’re buying MonteVista – oh man, and I liked those guys. Too bad they’re done if Sun buys them….

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  3. Damian… thanks for the post. brilliant points. in my opinion, SUN is the new AT&T. Everytime you are losing money on a deal, then you could sell it to AT&T. Well now SUN is doing the job, thank you very much.

    Talking about the Business 2.0 story, i wrote it, and i guess, the OddPost team got what Yahoo was able to afford. 2-to-3x revenues for a start-up is the price most companies in the non-tech world pay. Opportunity cost: ability to roll out a competitive product to new gmail and hotmail very quickly and be able to charge premium for it, Yahoo I think paid a fair price. most of the companies got fair valuations between 1.5 x revenues (or possible revenues) to 3 x possible revenues. Email me for offline discussion.

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  4. I think one has to understand the work culture in Sun. The technical team over there predominantly have this ego as “if its not built by them, its not worth to adopt it or look at it”. So it doesnt matter if they cobalt or Watson or some XYZ. They are going to kill it. I would rather suggest selling it to somebody else may be Red Hat.

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  5. Man… I have to admit you’re pretty dead on here.

    At this point after SUN screwing up for so long now you pretty much have to assume that every decision they make is incorrect.

    Sad sad sad.

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  6. Sun’s looking to buy out someone for around 5b cash. Looked at their sheet. Someones hiding the loot. What marketable securities do they have worth anything? Any accountant can post a billion here or there. The only cash Sun has is what MS paid them to hush. Plus they want to write off 400m in options before their uncle asks for it. Theres no one out there worth 5b. They’re not big enough to make a worthwhile acqusition. They should have been taken private, dropped the java enterprise suite. Get a new board. Drop AMD, 86 Linux. They have one money maker: Solaris/Sparc. If that don’t work, they go out of business. How can 11b in sales add up to nothing. This is a company that rewards thieves.Sun has nothing to offer anymore. Linux has killed them off. High end servers can’t compete with big iron. Java, what a waste of time.

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