10 Reasons Sun Should Hold Out On IBM

The Wall Street Journal The Journal reports

Even though the company has been viewed by many as being on life support for years, there are good reasons why Sun's value could be worth more in the next six months and the company should try to leverage it:

1. Sun has quietly been building out a nice "on-demand" computing model that would fit in well with IBM's long-sought buildout in that space. In fact, as of today, Sun is set to announce even more advances in its cloud computing initiative that could increase its value in and of itself.

2. Virtualization remains a key to the industry's growth and, short of buying Citrix, VMware or Microsoft, acquiring Sun provides the best opportunity for IBM to turbocharge its virtualization efforts and compete against the folks in Redmond. Sun's virtualization lineup in the enterprise is impressive. And its free Virtualbox offering on the desktop is becoming increasingly popular.

3. One of the biggest threats to IBM's database software business is the ubiquitous MySQL, which Sun owns and sponsors. It has the power to significantly erode a key revenue-maker for IBM but, combined with IBM's current offerings, could give IBM a much stronger hand than it now has. MySQL is simply worth a ton more to IBM than it is to Sun, and Sun should recognize this in negotiations.

4. If Sun has survived as an independent company for this long, it's seen the worst. (Sun ended trading on Tuesday at $4.97 per share; in Wednesday's premarket, following the Journal's scoop, its shares shot up to $8.23.) The company already appeared to see its stock price solidify after a year of losses; this could very well represent its low-water market and Sun shareholders could do much better.

5. Sun has been working hard to engage the open-source community--with OK, if not mixed, results at times. But there have been indications that Solaris and OpenSolaris could be about to break out. An executive at a major PC maker told us last week that his company had been called upon recently to deliver a significant number of notebooks preloaded with OpenSolaris to very technical (read: influential) users. That indicates strong potential for operating system technology that Sun has been very careful to nurture and grow in the face of many obstacles.

6. Java: Love it or hate it, it's still in everyone's face after more than a decade. For IBM, which has had Nobel Prize winners on its research staff, the potential to fix Java's problems and make it a market force once again makes the technology incredibly--and possibly increasingly--valuable.

7. IBM Chairman and CEO Sam Palmisano once famously said he was tired of ex-IBMers at EMC "kicking sand in our face" when it comes to the storage market. Years later, he must still be tired of it because IBM has made very little progress in this space. Meanwhile, Sun's storage offerings haven't gotten the love they really deserve. Much of the blame for that goes to Sun: The company has done a completely lousy job of marketing its strength in this space. By teaming up, Palmisano might finally realize his chance to fight back, with meaning, in one of the most important areas of information technology.

8. Sun's installed base goes way back to the beginning of the industry and could mean big bucks to IBM Global Services. The opportunity to set foot in data centers that Sun has spent decades cultivating should be worth a mint to IBM, and McNealy and Schwartz should make their suitor pay for that opportunity.

9. Hardware has been a laggard for IBM and last year contributed 9 percent to the company's profit--while software and services each contributed north of 40 percent. It's not a trend that IBM can see continue; by buying Sun and eliminating redundancies, IBM can inject some profitable growth into its hardware business for longer-term stability. Where else could IBM buy that kind of opportunity to straighten out its hardware prospects? Sun has to know this and shouldn't let IBM off the hook that easily.

10. Even things as simple as Sun's URL lineup could deliver nice value to IBM (Sun.com, Network.com are the biggest ones.) The folks at Sun could squeeze an awful lot more out of IBM if they try.