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Biz/Tech Watch: McNealy Resigns, Google Buys Sun Microsystems?

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Scott McNealy, Chief Executive of Sun Microsystems, “will soon move on from the company”, Forbes reports today, after recent revelations from Mark Stahlman, a research analyst for Carris and Company.

When the analyst last spoke with McNealy about his plans, he indicated that he was staying on “until the job is done” and concurred that finishing the job meant at least three things — reestablishing product superiority, regaining control over costs and igniting demand in a broad and balanced customer base.

“In our opinion, these three criteria have largely been met,” wrote the analyst in a recent report. “Accordingly, we will not be surprised if McNealy does indeed decide to step down.”

This latest revelation only increases the likelihood of a Google purchase of the hardware giant, something I argued for recently, which was very widely received by the online media and financial community only two weeks ago. It seems highly plausible that McNealy has been liquidating positions in accordance with a privately pre-arranged deal with Google Chairmen Page and Brin, who would need the excess liquidity of the stock in order to execute a successful buy-out of the hardware goliath: only a little over a week ago, he sold $10 million worth of Sun Microsystems stock that he owned personally.

Given Google’s current budget, McNealy will surely come out of this a handsomely rich man if this is the case, which may be just what he was hoping for all along: for some time now, he has been conspicuously inconspicuous in public appearances. Indeed, apart from declaring war on Microsoft, there has been little heard from the formerly extroverted CEO. The denunciations of Microsoft in themselves too have been peculiar: although it is known that McNealy and Gates share an age-old rivalry, what the current Chairman of Sun has been singing recently sounds much more in harmony with Google than with the former.

Consider this updated 3-month trading chart, benchmarked against the NASDAQ:

Google has been trading well under the NASDAQ benchmark index for some time now, and there is no clear signal that things are getting any better – Sun, by comparison, seems to be performing well above and there is every indication the price is headed further upwards. To honestly believe that the Chairman of Sun Microsystems’ sale of seven figures worth of equity on Sun’s market capital of ten figures would result in a further spike in the equity price if there was no agenda in play is almost unbelievably naïve of the functions of capital markets. Equity exchanges are the very oceans of the traditional supply-demand rationale: if there is no sufficient demand in the marketplace there cannot be a hike in prices – and for there to be any kind of price lift there has to be momentum – from whatever area – to keep this sustained.

Not only does the diversion of the companies’ share prices seem auspiciously coincidental when taken into account with McNealy’s alleged departure, but here is Google CEO Eric Schmidt, too, who has also, strangely enough, remained mysteriously silent since his ascendance to the Google throne. Only last week, respected technology pundit Paul Kedrokey remarked on his blog, Infectious Greed:

As an aside, can anyone out there provide me with personal and direct evidence that Google CEO Eric Schmidt is real? Because the more I see him (he increasingly strikes me as a less spontaneous and convincing Al Gore — yes, I know that is hard to imagine), the more I think that Larry and Sergey created him from spare parts as a grad-school engineering prank to convince Kleiner and Sequoia that Google had adult leadership.

Quite. The truth is, it looks increasingly likely now that he might well have been instated early, in order to prepare the groundwork for the pending merger.

When I first wrote about the possibility of a Sun-Google merger on the midwest’s most influential political weblog, Iowa Voice, most widespread criticism focused on two reasons:

1. Why would McNealy sell Sun equity if there was going to be a buyout?
2. Why would Google acquire Sun when it could cost them up to $50 billion, and reduce their own equity price to shreds of what it is today?

The reality is that Scott McNealy has probably come out of this looking prettiest of all – with a lucrative severance package, a small long-term non-controlling (and hence no hassle) stake in a technology goliath that combines both hardware and software, and a reputation for having paved the way for what might have otherwise only been a fairly small long-term player in the corporate technology market to become a company with potentially the largest market capitalisation in history, he has not lost anything compared to what he might have otherwise walked away with – a large stake in a mere $20 billion company.

Recent news and comments by leading analysts at major city institutions have pointed to the ‘organic’ nature of Google’s growth: the implication is of course that Google, as the trading chart shows, has to acquire growth now if it wants to accelerate at the same speed as it has formerly been used. And again, as I have argued before, without a hardware platform the world’s favourite search engine has little to rival Microsoft’s Windows Vista: already too, Microsoft is beginning to embrace the web with the likes of its Channel 9 blog, and may well start to reach out into areas of virtual organisation with a deft alacrity if Google does not act soon.

All things considered, a purchase of Sun Microsystems would be a timely and well-planned strategy for everyone: McNealy retires a rich and popular CEO, Schmidt would have a real job to get down to, and Larry and Page, naturally, would end up owning the rights to half the world’s technology.

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About Daniel M. Harrison

  • If we would beleive all rumors going around the web about google purchasing the X or Y corporation, they would soon be owning about 50% of tech. related businesses in the world.

  • Anonymous Coward

    Can anybody say “the network IS the computer”???

  • Mike Da Rookie

    If this is really true then all I have to say is; when will Google buy Oracle?

  • Sho Fukamachi

    Give me a break. Just because you want it to happen, doesn’t mean it will happen. I can’t think of any reason for Google to buy Sun.

    Google is a software services company that does not use any visible Sun technology. They’ve voted with their feet about Sun’s products, don’t use Solaris or Java, and use commodity hardware. If they wanted to release a hardware product, they could do it more cheaply and easily with the x86 commodity hardware with which they are familiar – indeed, they already do this with their hardware search product. So you haven’t presented any reason AT ALL for them to buy Sun, other than you think they’re a good investment in general.

    What’s the point? This is just baseless speculation, and McNealy hasn’t even resigned!

  • Person

    Does this not seem completely contradictory or in no way fitting with Google’s current role? I love conspiracy theory and all, but does every silence have to be “mysterious” ?

    Google works because it’s platform is the web. I can’t seen Sun giving it any extra leverage in the things it does best.

  • Yeah this is just like teh whole rumor about Yahoo buying dig for what… 26 mill?

    Pure rumor.

    The Riddler

  • Cameron

    Didn’t Google buy some SUN servers a few months back?

    I guess this would allow for google to make itself some amazing cool servers and some new toys. They also have talked about looking for new areas for revenue, but SUN? I guess SUN might be in a position to start making some money, but i don’t know. It doesn’t sounds like a good move, but then agian i would imagine the people at Google and SUN have thought about this much more then I.

  • Sporky

    The Forbes article’s point is that McNealy /could/ move on. I think you’re misconstruing the Forbes article by say McNealy /is/ resigning. You’ve got some interesting ideas, but, overall, I don’t buy it.

  • foo

    Google uses Java internally; it’s one of the ‘accepted’ ‘standard’ languages, along with Python and C++. Never came across any Sun hardware in production datacenters but stranger things have happened. With the move of some Google racks to Opterons, this would make strategic sense.

    The Google kernel hackers could probably find some interesting stuff in the Solaris 10 code to use in production, or Google could just retain all of Sun’s kernel hackers. Either way it makes a lot more sense than many recent acquisitions that *have* gone through. Just a thought.

    Sun is dying, and not slowly, either. They’re done.

  • n

    Google does use Java, they use it a lot (among other things like C++ and Python). For example, the Gmail frontend was written in Java.

    sun.com report
    “Google uses Java all over the place”

  • Mcnealy has not resigned – why is this news?

  • BuddhaPhi

    The author of this article has clearly established himself as the Art Bell of technology reporting. Conspiracies and secret dirty deals are always far more entertaining than the usual boring happenings in the tech world.

  • Jen

    Dear Foo, where do you pull this goofy quote from???…..”Sun is dying, and not slowly, either. They’re done.” I work at a very large financial organization which happens to follow Sun very closely, and they are in the best shape since the .com boom days both from a financial standpoint and a product lineup. Unfortunately while their stock price has been slowly moving up, the stock won’t get a big boost until they show some good profit numbers. However, as their new products get over the current delivery shortages, that seems poised to improve as well. While I’m not necessarily in full agreement over the fit of Sun into Google’s overall strategy, if they were to take a run at Sun, now would be the time to do it, while the stock is still a bargain.

  • Tanned

    The only real reason I could see for Google buying Sun would be to have quality hardware at a steep discount to themselves, while giving the Sun name a big boost along the way, thus re-energizing an essentially dead market.

    I don’t think it would work long-term, given hardware isn’t much of a money-maker today, and certainly won’t be down the road, save for the high-end market. Sun and/or Solaris don’t offer much of an advantage, if any, today, so unless there’s something mind-boggling on the drawing board, it just doesn’t make sense to me.

    Sun is sort of like Apple pre-iPod. A loyal market, very high quality products and a lot of promises for the future. Apple has gone through a complete makeover since Jobs came back on. Many say McNealy has done the same for Sun, but honestly, as a consultant, I don’t see any demand for new Sun installations. Many more ask me about Apple’s servers and workstations than Sun stuff. Something big needs to happen for them… A Google buy-out may just be that spark, but I’m skeptical that Google has much to gain or much to offer other than their name.

  • Anny Onoumous

    Working in a data center… let me just say that Sun is coming out in a big way. Multi-core processors running on a multi-threaded OS. Multiple domains running on a single box using an OS that can run mulitple kernel instances. One box… fifty servers.
    And they aren’t just running Solaris anymore, either. Windows and Linux are available for use on Sun x86 systems. Toss in the Google/Java partnership (which likely inspired the conspiricy story) and you’ve got a Sun that’s shining rather brightly, as Jen points out.

    That said, the sale of 10M shares of stock by Scott is no clue as to his intentions. He sold $10M of shares at full price, but bought the exact same number of shares back at a hefty discount. Question for any would be investor. If you could sell 50,000 widgets for $1,000 each, and then buy the same widgets you just sold… AT THE SAME TIME… for just $50 each… would you buy/sell the widgets? If you’re answer is no… say out of investing. Of course you’d sell an item at $1000 if you could buy it right back immediately at $50. And that’s all Scott did. He sold stock at current market value and exercised an executive stock option to buy the stock at a fraction of the market value.

    Basically, it’s how CEOs and other bigwigs are able to more or less mint their own money.

  • Alwiran

    Larry and Page, naturally, would end up owning

    rofl. are “Larry and Page” really 2 different people or they are twins?

  • shortbaldman

    Two things: Firstly Forbes is a magazine with not much credibility. Take any predictions which come from there with a huge grain of salt. Secondly, and more important is that there is no reason for Google to purchase Sun, who are mainly a hardware company whose sales are in decline. Whereas Google is a ‘services’ company. Therefore Google doesn’t have any worthwhile reason to take Sun (and Sun’s problems) on board.

    A previous poster said “[Sun] aren’t just running Solaris anymore, either. Windows and Linux are available for use on Sun x86 systems.” Sun hardware is expensive in relative terms. This is not useful to Google which uses huge arrays of cheap ‘throwaway’ PC’s. In fact, they often don’t even bother to remove a dead PC from the cluster until it becomes convenient to do so.

  • “Google is kind of a metaphor for investing today. People want a short-term fix and they want something that has momentum,” Example
    see the fun