Why Cisco, Not IBM, Should Buy Sun

42 Comments

With IBM (s ibm) rumored to have made a $6.5 billion buyout offer for Sun Microsystems (s java), it appears the company that coined the phrase “The Network is the Computer” is in play. But no one should allow IBM to walk away with Sun — which is still rich with talent, technology and engineering chops — at that price. All IBM would do is sell it off in pieces and keep a few jewels for itself, essentially eliminating a competitor. Everything else is codeine-influenced pillow talk.

I firmly believe Sun is a great engineering resource. The problem would be running the place, as anyone who bought it would be taking on a serious management challenge. Still, I can name a few potential suitors — Hewlett Packard (s hpq), Dell (s dell), Juniper Networks (s jnpr) or Hitachi (s hit), or even private equity guys (led by former Sun co-founders) — that would be up to the challenge. Damn, if I had the money, even I would try to buy it.

But no one is better equipped to buy and manage Sun than Cisco Systems (s CSCO). Despite its bold entry into “unified computing” with the launch of a new line of blade servers, Cisco is a newbie in the field and its product line so far is limited. Sun has a vast array of products, not to mention significant software resources (MySQL) for Cisco’s vision of unified and cloud computing and the sales channels and existing customers to help execute it. (IBM has all those things already, and it can pick up new customers via Sun.) More importantly, it has engineers — the very people Cisco values most and historically a strong factor in the networking giant’s acquisition decisions.

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While Cisco also has a deep bench of folks who could run Sun, I would want them to bring back Mike Volpi and put him in charge of the task. He worked well with the Cisco executive structure, and he has a scrappy attitude and a relentless focus on sales. I can’t think of a better reason for John Chambers to bring back Cisco’s “prodigal son.”

42 Comments

Sharif

IBM buy Sun just to eliminate a competitor? That’s not a very good use of >$6Bn of their cash position.

IBM to buy Sun for IP. That makes more sense. There would be value in:
1) Ownership of Java … IBM is already the world’s largest Java consultancy.
2) Leveraging Coolthreads technology … combining Coolthreads with PowerPC would be formidable.
3) Solaris … IBM is already the largest reseller of Solaris. Bury AIX and make Solaris their standard.
4) MySQL … what a lovely entry point. In the database world, IBM has already shown their ability to monetize acquisitions.
5) SunFed … Sun has deep roots in the Federal space. SunFed alone, would be a valuable business.
6) Storage … Sun has finally started to make waves with Thumper. IBM could jettison their NetApp partnership and cut out the middleman.
7) Tape … believe it or not, tape is still alive and well and won’t be going anywhere for a LONG LONG time.

I’m sure there are many more examples than these. There are also all sorts of interesting “experiments” that IBM could monetize (Blackbox, ZFS, etc. etc.).

No, I don’t think IBM is in it just to take out a competitor. Sun has just been mismanaged to the point of becoming an inexpensive acquisition. IBM (or Cisco or anyone else) would be foolish to pass up this opportunity.

A regular Nobody

I have some comments regarding Sharif’s post :

2) I don’t think Sparc technology can be ported to Power .

3) I admire some of Solaris technologies like FMD, dtrace, zones, zfs etc. but the truth is that AIX has them also and I believe IBM has the edge here.

4) What entry point ? have you heard of db2 or Informix ? :)

6) Storage ? IBM is the largest seller of storage equipment, have your heard about DS4000, DS6000, DS8000, ESS ( all IBM hardware) ?

7) IBM doesn’t need Sun for tape …

IBM never needed Sun, that’s why the deal never came through, after analyzing Sun’s assets they minimized their offer because they realized SUN is pretty useless to them. ( besides total ownership of Java and maybe some customers that would eventually move to IBM products)

Nishant Arora

I am wondering wouldn’t Cisco have already done its research on possible permutations and combinations(esp. when it has 30 billion in cash). More so Sun has been looking for suitors for a while now and Cisco’s decision of entering into blades is also well planned.

This makes me wonder if Cisco has something else in mind. With UCS, they are targeting a market which is at present niche and they must be expecting it to grow by leap and bounds and they believe that Sun’s installed base and most of its technology will not add transformationak value in the space. Almost everyone is new to Cloud and no one yet knows what will eventually lead to nirvana for cloud.

Further the way IT market is coming off age, its turning that behemoths like HP and IBM have added quite a lot of breadth and depth to their portfolio. Everything said and done they are the strongest contenders to own the datacenter of the future.

At present the behemoths are exerting influence and potentially weakening the niche players(Cisco including) with their might(promoting proprietry products + endevours of making them best in class). The road ahead appears blocked till niche players come together combining their strengths and creating a formidable competitor (they will HP and IBM to join but will make effors to avoid them). Cisco with its leading networking and strong balance sheet might think itself as being perfect for exploiting this partnership. This option of having multiple permutations and combinations gives customers opportunity to choose the best fit and having it under one umbrella with can be a potential inflection point. The biggest challenge will be coordination and running the show which Cisco hopes it will be able to do.

So Sun acquisition and its portfolio will somehow affect Cisco’s plans as firstly Sun is losing market share and it might not be able to turn it around as it just has cash but no experience in Sun’s primary markets or presence in emerging countries etc. Sun will definately be a drain on cash on one hand and what it will make Cisco is more like HP and IBM but comparitively weaker. Cisco thinking that it smarter will like to avoid the scenario. Not acquiring Sun gives it perfect opportunity to partner companies which can add value and Cisco can just pick up perfect fit.

MAYBE thats why Cisco is not acquiring SUN

Nishant Arora

I am wondering wouldn’t Cisco have already done its research on possible permutations and combinations(esp. when it has 30 billion in cash). More so Sun has been looking for suitors for a while now and Cisco’s decision of entering into blades is also well planned. But all the arguments of accessing installed base, technology, storage, java etc all make sense.

This makes me wonder if Cisco has something else in mind. some of my random thoughts on this here http://mydistortedeyes.blogspot.com/

nuchil

I think Oracle should buy SUN. With their recent acquisition of BEA (and they are doing a good job of integrating it within their products suite), having SUN hardware would be awesome. Hope Larry is listening…..

nuchil

LOOKS LIKE I PREDICTED THIS ONE!!!!! THANKS FOR LISTENING LARRY…..

RJ

Nobody should buy Sun! Especially IBM. Good technology that drives business innovation will die if that happens. They are on the right track…Great technology and innovative offerings. They do need some more aggressive sales and marketing efforts, but they have the best comprehensive hardware, software, and storage story out there built upon Solaris, Java, Niagra and Rock, ZFS, AmberRoad, Magnum, MySQL and PostGreSQL, IAM, and Glassfish. If you put those technologies all together, you have the most formidably platform for fostering business agility along with being the most cost effective and capable end-to-end solution.

I hope these all end up as rumors and/or the talks fall apart. Besides cultural differences, there is too much duplicity in the product lines. And as far as buying them for their clients, Sun clients are clients due to Sun technological superiority. IBM sells to execs. IBM, HP and Dell customers are herd mental clients. A number of Sun clients won’t buy from IBM unless the Sun culture and products are completely intact. And I don’t see how that could happen with such duplicity in products.

Niraj

Damn, if I had the money, even I would try to buy it.

Did you buy their stock at 3.00 dollars?

Balint Hunro

Schwartz tried to save Sun, to wean them from their SPARC addiction, but Mcnealy would never let him cancel it. That’s what I heard. No matter how hard he tried to drive them to embrace the real world (x86, open source, etc.), and even started monetizing all that software, McNealy kept pushing for more emphasis on the dead technology. Someone ought to write a book about the epic struggle.

oughtono

Please check the revenue/profit numbers of Sun’s SPARC CMT and x64/x86 servers. CMT growth is way ahead than their x64/x86 counterparts within Sun. Sun’s the leader in multi-core offerings based on SPARC technology.

Main issue has been product innovation based on technology innovation within Sun, implies bad execution. What’s the point of having a huge product portfolio when core line isn’t improving.

CP

When was the last time that Cisco purchased a legacy, headache? Lord knows they have had plenty of opportunities. Cisco will pass, as should IBM. How would Cisco’s many California partners respond to Sun sliding into the catbird seat in the partnership?

Manish

Cisco has a history of doing smaller acquistions only for newer technology. SA & Webex are the only 2 exceptions.
Cisco may be thinking of BMC & Netapp for now.

Richard Bennett

Actually, Cisco should buy IBM. That would give them a foot in the door of … places they already have a foot inside. Never mind.

Cisco buying Sun makes a lot more sense: they’re two engineering-oriented companies with complementary strengths, and no engineer in his right mind wants to work for IBM these days.

Madan Menon

at 6.5B is grossly undervalued. I think IBM buying SUN is like the HPQ merger, disaster. With Cisco buying SUN, we might see synergies since Cisco’s strength is in the networks and is now breaching new grounds with cloud and blades – an area where sun already has a head start.
Ideally, there should still be the third entity, a private equity group buying sun and keeping the competition alive.

but like you said – if i had the money i might have bought it! :)

Madan Menon

at 6.5B is grossly undervalued. I think IBM buying SUN is like the HPQ merger, disaster. With Cisco buying SUN, we might see synergies since Cisco’s strength is in the networks and is now breaching new grounds with cloud and blades – an area where sun already has a head start.
Ideally, there should still be the third entity, a private equity group buying sun and keeping the competition alive.

but like you said – if i had the money i might have bought it! :)

Om Malik

Sramana

that is a pretty good suggestion though I hate it when people including my friends try and use link spam in comments to promote their blogs.

with that out of the way, i am sure sun as an open source company would be a great idea as long as they can execute on it. the problem for the company has been ability to execute. they have always had the right ideas but since the core founders left, they got no execution unfortunately. it is hard to say why… people blame the CEO. I don’t buy that. You can’t just blame the head guy, who I think is a very sharp and smart guy.

There is a systematic problem. “Collegial” is the word one commentator used earlier. That is not how great companies are built. Maybe colleges are.

Sunmonkey

Sun needs a Cisco or IBM (or Google) to kick start its competitive fire. Sun is run by Engineers that are really interested in Engineering Problems, but think marketing and sales just get in the way. There has always been a “sales is a necessary evil to fund our science experiments” attitude within Sun and that’s the only thing that’s kept us from kicking IBM, Dell, and HP’s butt is some marketing and sales savvy execs at the top. The last 3 VP’s of sales at Sun started their career as SE’s. Not one head of sales at Sun has ever come from Sales since Ed Zander left the company. That’s not a coincidence that our sales and marketing have sucked ever since.

Sun needs new management (run by someone with an eye on selling the wonderfully engineered products) and marketing. The technology is better than it has ever been and the sales organization (below the VP level) is strong.

srini

om – loved your plain talk re: mitra’s crappy blog link spam. her blog sucks.

Ashu

Om – this probably is one of the best ideas. As a disclaimer I work for Cisco, and this is purely my opinion. I think CSCO and JAVA would make a fantastic synergy – it could combine the “Cloud Computing” initiative announced by Sun and the UCS announcement from Cisco yesterday. Culturally speaking CSCO can absorb large companies and has the cash/capital to make this successful.

JAVA can bring the “software’ culture and also some amount of large scale IT Services mentality to CSCO.

The Solaris/Sparc combination could bring in the high-end horsepower for the UCS effort announced yesterday.

Dell, IMHO, is not an engineering company – that would be an accident waiting to happen!

alpha

Cisco should buy SUN not IBM Im agree. Cisco needs SUN for the field they want to enter, IBM already have the products and the market, IBM doesnt need SUN. If IBM get SUN it will destroy the good products and engineering of SUN.

tim

I think this depends on whether you see Sun as a hardware or a software company. I think IBM is better equipped to take over Java, MySQL, and OpenSolaris and build profitable services on them. But I suspect this is the end of the line for Sun’s hardware projects — or the parallel IBM projects that they make redundant. So if you’re a software guy like me, IBM’s the better suitor. But if I were a hardware designer, a Cisco acquisition would seem more likely to keep me employed.

Om Malik

@tim

that is what I am saying – IBM will break up Sun, sell the parts and keep the good bits. It sis nothing more or nothing less. People are in denial about that, including @cloudAs.

Rajiv

I disagree with you on this one, Om. While Cisco is looking to enter the enterprise computing space, it has no experience in application software and higher level consulting services. It reminds me of AT&T and NCR in the 90’s where you would think it’s a complementary fit, but it actually causes more problems than it solves. IBM has a great deal of experience in working with multiple hardware platforms, software platforms, services groups. IBM has the ear of the business and IT exec with a strategic and solutions focus. Sun’s platforms will actually do better with the IBM salesforces and the already strong link with IBM Global Services. MySQL, Java and Sun’s other software platforms would fit well with similar IBM initiatives.

gp

nobody should buy SUN ….give that company some more time ……..if focus on selling software more and harware indirectly thru cloud they will back in business

lopezunwired

Good points but Schwartz ran that company in the ground. Unfortunately, Sun lost is way. Everything went open, Java’s free and they had no way to capture R&D dollars from developer tools or services to remain competitive. Sparc is a power hog and will most likely disappear inside Big Blue. There won’t be a price war for this one I’m afraid.

Fabian Schonholz

I always wanted to work for Sun. They have some really fantastic talent and a wealth of ideas. Also, I agree that Cisco will probably benefit the most form acquiring Sun, but IBM is a good suitor as well. I am not so sure about HP or Dell as suitors compared to Cisco and IBM.

enemes

If Cisco buys Sun, it would be a total disaster. Culturally, companies are incompatible. Cisco is very product and results driven. Sun is very collegial, many projects are really ran like science projects. This would be devastating for most Sun people.

Om Malik

@Enemes,

I disagree. Mostly because that collegial atmosphere hasn’t really worked out that well for Sun. I think the company needs a swift kick in the “you know where.” It needs a sense of urgency and it needs to approach every day with new energy. Cisco will bring that to the mix. I think IBM will be an utter disaster. I really don’t think IBM can make those big changes.

enemes

In theory, if things could have a chance of working out as you described, I would agree. The reality is very different, however. Surviving at Cisco is not a trivial matter, especially if your business unit is not gaining traction. Cisco can be viewed by many as much more of a non-creative, business-driven environment. This is the reality of it. In many cases it worked out well. In some cases some very interesting things that were not really trivial got killed.

Ravi

Om,

I agree with you. Actually, I would think Sun has more in common with Cisco as compared to IBM, as far as cultures are concerned. IBM is a more buttoned down blue suited East Coast kind of company. Cisco is more like Sun in that they both have their roots in Silicon Valley

Greg Glockner

I’ve been wondering whether Apple would be a better company to takeover Sun. I see a lot of redundancy between Sun and IBM – in databases, operating systems and servers. Compare this with Apple. Apple has nearly zero market share in the enterprise. Apple has some servers, but I suspect that they are only sold to Apple shops like universities. Apple is flush with cash and can easily absorb Sun. Then again, I cannot imagine how Apple would pull this off during a period while Steve Jobs is on leave. Plus that it could be a distraction from what makes Apple successful – consumer electronics.

Om Malik

Greg

I think Apple has moved into a whole different direction and well there is nothing “enterprise-y” in their approach. I think it would be more of a distraction and take company’s attention away from its core business of consumer electronics.

Dean Michael Berris

Yes, I agree Om that Cisco should buy Sun. If reports were true that Cisco’s sitting on something like $30Bn cash, they should put some of it to good use and bolster their datacenter takeover strategy by buying Sun and announcing with a bang that they are indeed serious about the cloud.

Should be happy days in the Bay area when that pushes through.

cloudAS

the premises here are not supported by facts — maybe they are “codeine-influenced” :-) Sun has steadily been eliminating itself as a competitor, so no pressing need to acquire for that reason. and IBM doesn’t have a habit of breaking up its acquisitions and selling off pieces. Stacey’s analysis demonstrates a much better understanding of IBM’s strategy and why it could make sense.

Om Malik

CloudAS

Stacey and I had different point of view on this and only time will tell how this really shakes out. I think at $6.5b, this is a steal and I think Cisco should get into the action.

Adrian Ionel

yes. still don’t get how cisco intents to win in the server market.

Om Malik

maybe they start by doing just that – buying sun. it is a good way to win the market. i really think sun is not as bad as people make it out to be. it just needs some tough love.

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