Why Sun should beg Dell to merge
By BRANDON MUSLER
(March 15, 2002)
Sun Microsystems CEO Scott McNealy is fond of comparing the automobile and IT industries. He positions Microsoft and Intel as "the General and Motors," while casting Sun as the third survivor in the great IT consolidation to come. The highly perceptive McNealy got the big picture right again. The proposed Hewlett-Packard/Compaq merger demonstrates that consolidation is indeed at hand. But Sun is increasingly looking like the extinct American Motors Corp. (AMC).
McNealy's penchant for comparing computers and cars is easy to explain. His father was a senior executive at AMC, the fourth "major" American car manufacturer in the 1970s, best remembered for the Jeep. Today's Jeep is a well-pedigreed SUV, but for years AMC staved off its ultimate demise by extracting a premium for its unique Jeep platform. From necessity, AMC devolved into "the Jeep company," much as Sun became "the Internet company." That's easy to forget because, buoyed by the success of Web servers that are so closely associated with the Internet build-out, Sun defied gravity for years. But last quarter, sales slipped 39%, and Sun lost $99 million.
Whatever the merits of the proposed merger between HP and Compaq, those companies are trying to scale up to counter the immutable trend toward commoditization. Both HP and Chrysler looked the future in the eye and chose consolidation as the path to corporate survival. Chrysler's merger with Mercedes-Benz offers a carload of caveats, but the fundamental decision was rational. Management confronted the reality that global competition demands global economies of scale. Similarly, regardless of the ultimate fate of an HP/Compaq merger, management is at least addressing the fundamental challenge of this computing era: commoditization.
So how does Sun fit in a postboom IT environment? Sandwiched between IBM's enterprise expertise at the top and Dell's commodity expertise at the bottom -- like lunchmeat. McNealy touts Sun's vertical integration as a competitive advantage. The truth is that Sun is master of its domain only when a department is staffed with Sun worshippers, whereas IBM influences the heterogeneous enterprise -- that is, all the rest.
Over the past few years, IBM has buttressed the mainframe business by reinforcing its flanks with Windows, Linux and even e-business expertise. A completely surrounded Sun has been so slow to accept Linux that McNealy had to don a penguin costume to garner press coverage. On the other hand, streetfighters such as Dell wield Wintel servers like Samurai swords, cutting into Sun's bare midriff and rendering the protective armor plating of its minicomputer-era margins obsolete.
Automobile and IT history suggest that Sun ought to beg Dell to merge. Comparable "hot box" companies, such as SGI and Digital Equipment have faded into history. Although Digital's VAX minicomputer first proved that "the network is the computer," Compaq subsequently devoured the company. While Digital founder Ken Olsen was deriding Unix as "snake oil," Scott McNealy was using it to build and network price-efficient workstations. Sun was nurtured in the shade of Digital's tunnel vision. Unless McNealy acts soon, Dell will exploit his blind spots, regardless of HP and Compaq. Great ideas such as the SUV, minicomputer or network server find a way to survive, even when their creators say "over my dead body."
Brandon Musler is a freelance IT writer and consultant in New York. Contact him at bmusler@worldnet.att.net. |
