Pride Trumps Good Sense in IBM-Sun Talks - Page 2

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Sun has been trying for nearly eight years to recover from the dot-com meltdown. Before the bust, Sun reaped huge profits because its servers powered the growth of the Web economy. After the bust, lightly used Sun servers were a glut on the market, sharply curtailing sales of new Sun servers. By the time the economy recovered, Sun found that its market was getting squeezed in the low and midrange by the likes of HP and Dell and on the high end by IBM.

As a result, Sun's server sales have stagnated, and it has had to repeatedly restructure. Although Sun's stock had clawed its way back into the $20 range since the dot-com bust, its share price has hovered between $4 and $5 for long stretches during this decade.

Thus it seemed that a buyout by IBM would be the best possible outcome for Sun-one that would enable Sun shareholders to reap a decent price for their much devalued assets and perhaps provide a way for the Sun brand to survive in the IT market for at least a little while longer.

Now everything is back to square one, and Sun finds itself in exactly the same position as Yahoo after it rejected Microsoft's very ardent buyout offers. Sun no longer has an offer on the table, and the future is looking dim.

Since it's likely that Sun has burned its IBM bridge behind it, Sun will have to find a new buyout prospect or look to its own devices for long-term survival in a recession-stunned market where hardware prices are under greater pressure than ever.

Some Sun shareholders may be left wondering whether the stubborn pride of the McNealy board faction has cost Sun its last best chance of reaping the most value for the company's assets.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...