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Sun could be perfect acquisition for Dell

Apr 19, 20043 mins
Data Center

* Is Sun setting itself up for acquisition? Dell might be interested

It is no secret that Sun has been in a steep decline, and now it appears that CEO Scott McNealy is getting it ready for the auction block. Before you hit the “Delete” key, consider this: Why lay off almost 10% of your workforce the same day that your company wins a multibillion-dollar lawsuit? Maybe to set your company up for a takeover.

That sure seems like a possible outcome when you consider the performance of Sun over the past couple of years. But who would want what’s left of a once-successful tech powerhouse? Maybe Michael Dell.

Dell’s team has been enjoying quite a bit of good press and solid financial performance during a period when many of the tech players have been struggling. The trick in tech is not just getting out in front, but also staying there. Dell has been successful in the pursuit of dominating the PC market and is trying to penetrate the lucrative server market. Picking up Sun could be just the ticket to success in servers and the bulk that Dell needs to go after the likes of IBM and HP.

Sun is struggling for its life and needs help now. Although the company will receive almost $2 billion in cash from the Microsoft settlement, it may not be enough to stay alive, and it certainly won’t solve the other critical issues that Sun faces. Although beaten badly in the market, Sun does have some powerful assets that Dell would find valuable.

First, Sun’s services business is one of its bright spots and could boost Dell’s top line by almost 10% and contribute a valuable component to its product mix. Technology-related services are highly profitable and are required for any vendor seeking to do business with Fortune 1000 companies. Not only would the services be important to CIOs everywhere, but with Sun’s high-end servers and the cadre of customers, it would also give Dell additional credibility.

Also key to Dell becoming a credible alternative to HP and IBM is having a set of tools to manage the systems that it sells. Acquisition of Sun would give Dell an interesting portfolio of management tools as well as some significant intellectual capital around them.

Advancing technological leadership from Sun’s significant annual expenditure in R&D would be an additional strength brought on by an acquisition. Couple the advancements made by Sun’s R&D efforts with Dell’s penchant for low-cost manufacturing and distribution, and you have a powerhouse with market momentum.

Finally, Sun’s international presence would be one last valuable asset for Dell, which up this point has only dabbled offshore. The international markets continue to present opportunity and Dell would eventually need to be sell there if it wants to truly compete with the other two players in the ring today.

With the integration of these key elements, Dell would become a real threat to HP and would be positioned to challenge the Big Blue Machine.