Solution Providers: Taking Sun Private Bad Idea

Rumors resurfaced in published reports last week that San Francisco-based investment firm Silver Lake Partners would purchase Sun and turn it into a private company. Both Chairman and CEO Scott McNealy and President and COO Jonathan Schwartz have publicly denied the rumors.

Industry observers said the move would not solve Sun's lack of profitability problem, one that has plagued the vendor for the past several years.

"I don't think changing their capital structure would help Sun's fundamental problem, which is what products are they selling and to whom and [articulating] what's their value proposition," said Marc Maselli, CEO and president of solution provider Back Bay Technologies, Needham, Mass. "Sun needs to figure out how to put their current assets to better use."

Jonathan Hoopes, special opportunities and technology analyst with independent equity research firm Wm Smith and Co., agreed that selling Sun to an investment firm would not solve the company's financial woes.

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"Adding debt in an LBO [leveraged buyout] does not get Sun any closer to growth or profitability--McNealy and his team must execute," Hoopes said. "Neither Sun's current capital structure nor Sun's current ownership profile precludes management from executing on its priorities for 2005, which include to make money, grow, etc."

The rumors of a buyout resurfaced just before a Sun executive unveiled Friday that the company would refocus its R&D hiring efforts overseas rather than in the United States.

Speaking to reporters in Bangalore, India, on Friday, Stephen Pelletier, the company's senior vice president of global engineering, said Sun would turn its attention from Silicon Valley to four research and development centers in Bangalore, Beijing, St. Petersburg and Prague.

A Sun spokeswoman told CRN that Sun would continue to invest globally in R&D as it has always done, but it is indeed expanding efforts outside of the United States. However, the company has made no plans to lay off or hire employees due to the shift, she said.

One solution provider suggested that R&D investment is one area where the Sun should be cutting costs to help drive overall profitability.

The solution provider, who asked not to be named, said Sun is still operating at the same R&D investment level it was when it was making a lot more money, which does not make much sense for a company that is struggling financially.

"I think R&D costs are completely out of whack," said the solution provider. "I know R&D is the future, but if they had the R&D expense in check, they'd be profitable."