Splitting Up Sun Microsystems

Sun never fully recovered from the dot-com bust of 2001. With the company attempting to rally around open source software, is now the time to get out of the hardware business?

Amid the news surrounding Sun Microsystems’ announcement that they had only lost $209M last quarter (resulting in a 20% bump in their share price) was a suggestion over at the Motely Fool that the company should not be allowed to continue in its current form.

My suggestion is simple: Split the old Sun into two businesses. Let one company figure out how to sell chips and servers, while the other gets a handle on turning a profit from open-source software.

That’s not a terribly wild suggestion. Clearly the company suffers from being too big (two rounds of layoffs in 2008) and too unfocused (could you sum up what Sun does in one sentence?). Part of this stems from the need for the company to reinvent itself from a hardware-centric company to an open source software powerhouse.

At least that’s what Sun seems to be remaking themselves into. On the one hand, the MySQL acquisition appears to be paying dividends. On the other, Java developers seem to have been hit hard by the most recent layoffs, making some question where Sun will take Java in the future or if they haven’t already mismanaged it into an increasingly diminished role. And the company just announced that their 16-core Rock UltraSparc-RK processors will be ready before the end of the year. Launching an ultra-highend server in this market? Seriously, even Intel’s having trouble selling chips right now. Is a lack of highend hardware really Sun’s problem?

Sun’s server revenue fell 14 percent to $1.37 billion in the latest period. Storage revenue fell 13 percent to $570 million. — AP

There’s no sense in speculating on Sun’s eventual downfall. The company has managed to exist in world of IT by operating at a loss for much longer than I’ve been paying attention to it.

“In my first quarter as CEO we had revenues of $2 million and a loss [sic] $500,000 loss” — Scott McNealy

But you have to wonder how well Sun will navigate the current recession. And if splitting up the company wouldn’t allow it to better focus on innovating in the area of software and not seem like it is perpetually missing the boat.

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