Saturday, March 21, 2009

Of silences, facts and treason


Since the rumors started about IBM purchasing Sun in the sales store, nothing has been said by the management of the company.
The official policy here at Sun is not to comment on market rumors about our company, but this time I guess we should make an exception (even Jonathan's blog is being censored: no comments about the merger are allowed, and so his last post only shows a strange low number of just 9 comments).
The market has believed the rumor as a true fact, as a matter of time until the acquisition is completed (see this due diligenge report piece of news, or the growing number of articles talking about the subject). The best proof that the market is believing this is a fact is the rise in our stocks: nearly an 80%.

Jonathan, can you imagine the number of opportunities we are about to close competing against IBM in all our product lines?
Can you imagine the damage this FUD is making us in those opportunities?
Why would a customer buy a Sun product instead of an IBM one, if at last it will be the same company?

I never believed the many rumors about other companies buying Sun, but it is time to say something about it now, say that it is not true and everything will be fine again. In the past I've always agreed with this silence policy, but now is quite different, we could be even accused of rising the price of the shares with false rumors (if this is the case, why did not you do it before? You've seen the results in the stock price...).

Unless the rumor is not false. And this is the impression you are giving with your silence. And this is what everybody believes now.


There are a couple of major investors that now control the company: KKR and Southeastern Asset Management. KKR made an investment operation, too complicated for me to explain, so I'll give you a link to the press release where this was explained. At last, they are receiving a fine interest on the money they lent to Sun, and have the right to get their investment back in the form of shares, at about $7.50, so selling the company today at about
$10, and then wait until this shares are converted into IBM shares with a prevision to rise in the next years well beyond the initially expected outcome is quite a business, so I imagine that they may be for the agreement.

What puzzles me is the attitude of SEMA (you know, Southeastern Asset Management). They purchased a significant number of shares of Sun, making them the first investor in the company, but they did it by more than $10 a share (according to my information, they made significant investments between 9 and 16 dollars, probably most around the 16, just check the evolution of the stock price and the times when SEMA did the purchases of stocks). So, if they are the major stakeholder, they are the ones to be heard about making a deal to sell the company, and if they agree with IBM's offer, then they are assuming they are not able to take greater profit for their investments. This is weird for me, I don't believe they will sell for less than they bought, so we'll have to wait and see. Maybe this is why the took the reigns of the company, but in any case I think the price is not enough for them to even recover their investment.

Another fact is that the merger of the number 1 server maker with the number 4 (almost 3) server maker could be scrutinized by antitrust authorities in the US and in other countries. It would create a 'de facto' monopoly in the server market. I guess Hurd must be quite nervous, but not as nervous as people at Fujistu or even Michael Dell. If the deal is finally closed, Michael should think in who he is going to sell the company, and I guess IBM and HP will not be candidates anymore.

The feeling I have today is that the talks already begun long time ago, and that all the recent moves at the company were just oriented for its sale: the downsizing of 6,000 people, the reorganizing in three major departments (that would ease the selling of parts of the company to face an antitrust issue), so this past week's rumors and news seem to be just the final stage of the long time announced selling of Sun.

Another interesting fact is that Sun's shares rose to $8.10 at the end of the week, so the offer made by IBM is not a 100% plus anymore over the price of the shares. At least investors think that the company is valued more than this: Jonathan, the company is valued more than this. Even more, the company is viable, has fantastic products and the only thing we lack is advertising and sales reps (and a proper management team...).

Another fact is that I'm checking if (fake) Palmisano has a blog already and if I can get the name for whatever happens in the future...
I'm also buying a set of white short-sleeved shirts to match my grey suits (you know, the standard dress code at IBM).


Sun is not only the dream of four friends that built this company back in 1982. It is the dream of his 40,000 (no, now 35,000; no, 30,000) employees. Sun is in most cases not only a place to work, but a dream, a way of doing business, a way of loving computers, a place for engineers. When running a company you have to think not only in shareholders and customers, but also employees: they are not a company asset, they are the company itself, they are the spirit, the soul of what we do, and we must honor them and take care of them.

SEMA was announced as a 'long term investor', as someone to give stability and guidance to save the company and make it come back to past success. They were defined as an investor with a 'velvet glove reputation'. Now it seems their only intention is to get their money back as soon as possible and no matter what is the cost for Sun. If this was the reality, this would be a treason: they'd have lied to all of us.

After all the pain suffered by the employees, after the savage downsizing of employees, after everybody working harder than ever was seen in the history of computer companies to give Sun back to profitability, dog-fighting in every deal to win as much of them as possible and some more, if the board just gives up and sells the company, it would be a treason to every employee.

Jonathan, such an effort restructuring the company, creating the most advance portfolio in the computer market ever (with no marketing), sacrificing such a good people, swalloing MySQL and StorageTek and many more great companies, to just give it everything for a fistful of dollars to one of our worst enemies?
I'd consider that a treason, and not only to the people that appointed you to the post of CEO, to every customer that believed in Sun, to every employee that trusted you and gave part of its life to build the company.

No matter what happens from now on. You diluted the value of the company in a way nobody ever saw before. I'm cursing the day you became CEO.


Anonymous said...

Jonathan Schwartz is a self-important, pseudo-intellectual douchebag. He has not a single positive result to point to.

Anonymous said...

I find it curious no one ever stops to notice that big Unix servers are in decline - for all vendors.

HP has a buffer in printers. IBM was smart to diversify into Services and Software.

But Scott never did, and by the time Jonathan got it, it was too late. So I'm all for piling on the pony tail, but you might want to check your history. I give the guy credit for trying to save the franchise, but by the time he got it, the pooch had been screwed by Zander/McNealy.

Anonymous said...

Oh, I'll willingly admit that McNealy was the original problem. (As was the Board. They waited for approximately five years of denial and successive, quarter-after-quarter failures on Scott's part before they replaced him.)

I also think that Schwartz was dealt a sub-optimal hand. BUT, he played it very badly. Jonathan's chief initiative has been to open source Sun's products. That's it. Period. That's far from being enough to fix Sun's financial performance issues.

His principle problem is that he has no business acumen. He's a (misguided, self-proclaimed) "visionary". Sun doesn't need visionary leadership. It needs a practical leader with solid business acumen.

The primary problems that plague Sun in the short-to-intermediate term are things that only the CEO can address. Jonathan seems oblivious to these issues:

1.) Customers & Markets - Jonathan is ambivalent about customers and markets. Sun has a "Field of Dreams" business model. They delude themselves into believing that some wonderful bit of magical engineering will save them. Rather, Sun needs to focus on its customers and markets, understand their businesses, and help them solve their business problems.

2.) Organized to Execute - Much has been written about Sun's ability to execute. This is simply because Sun is not organized to execute. There is no alignment of resources for execution. Historically, Sun has been "accidentally successful", in that it has developed something, or bought something, and customers flocked to buy the products. This era has passed. Sun needs to purposefully develop products, and purposefully market and sell those products with personal and organizational accountability for success or failure.

On this latter point, the new senior Vice President for Sun's Top Account sales organization hasn't made her numbers in /years/. Does this matter at Sun? No. Like some of us say, "nothing succeeds like failure at Sun". Further to this point, Jonathan blew $5B in CASH on the StorageTek and MySQL acqusitions, and has managed them to lower levels of performance (STK is now consistently shrinking, not growing, each quarter) than the companies experienced before they were bought.

3.) The Strategy - Jonathan's strategy is simply wrong. Now, we can have the irrelevant debate about how visionary it might be, but it has yielded no results. Sun has shrunk in size each-and-every quarter that Jonathan has been COO and CEO. There can be no debate on the merits of his strategy. It has failed to produce results. And if anyone is inclined to say that his strategy hasn't been given adequate time to product results, I would suggest they look at how long it took Mark Hurd and Lou Gerstner to turn around their considerably larger and more complex operations at HP and IBM.

Jonathan has had opportunities to diversify. I have been involved in efforts to develop business plans that would have taken Sun to consistent year-over-year growth in its largest market. No go. I have also seen what has happened when VP's delivered news of what we needed to succeed in these markets. If it didn't sync with The Ponytail's vision, they were sent to the organizational equivalent of Siberia.

Jonathan has managed badly. Very badly. Sun could still succeed as an independent company, but only if an outside CEO, with solid business acumen, is brought in. It's sad that Sun's investors are pushing for the IBM purchase, but one can understand how they have grown impatient for results. Even taking a loss is lower risk than keeping one's money tied up in Schwartz's ability to perform.