Tuesday, April 21, 2009

Farewell to Sun Microsystems

Some quick blogging about Sun and Oracle:

The first time I blogged here about Sun it was to criticize their lack of coherence: They had this market prong of Java which commoditizes the computing platform, and at the same time had the "boutique" Sparc hardware, along other things that I called a "multiple personality complex" trying to be open and proprietary at the same time. Nevertheless, Sun came a long way during these 3 1/2 years. They at Sun kept capitalizing on opportunities thanks to a practical approach: They deepened their AMD Opteron offerings, early in the cycle of Intel's Core architecture they began to also offer Intel without de-emphasizing their Sparc offerings. They kept opening their businesses, launched --finally!-- an Open Source version of Solaris, allowed Java to become ever more free, continued providing support to OpenOffice, gave the reins to "Mr. Open Source CEO" Jonathan Schwartz, acquired MySQL and VirtualBox. I was very optimistic about the end result of all of this, and wrote a blog about it which I recommend to the dear reader; in summary, all of this openness and reliance on Open Source enlarge a market for the products of Sun, and allows the participants in that market to move faster than the industry. This success was assured by the history of IBM's embracing of Linux and Sun's very Java; and although Sun was very late to that game, it still wasn't too late.

A little before the acquisition of MySQL I had already taken a small bullish position on Sun. My intention was to accumulate over a period of three years, with a lot of patience at the beginning acknowledging that the traditional businesses of Sun were in shambles, without any clear prospect of re-vitalizing them, but I wanted to get early due to my conviction about the results of the evolution that was (is) undergoing. The plan of selling covered calls wasn't losing although the price was declining, until the crash. This crash zapped my conviction on Sun because with a bad economy the prospects of a struggling boutique shop had to include bankruptcy, so, I didn't accumulate, but neither sold.

Then came the news of the IBM acquisition, that made little sense to me. At this point, I got tempted to sell, to perhaps buy back after the bubble bursted, until I heard that the Sun board had rejected the IBM offer. I reasoned that the board probably knew what they were doing, perhaps there could be a better option for Sun down the road, and decided to wait. Then, I got to know that IBM also thought it over, and as a financial journalist said, they were not willing to undergo the "financial proctological exam" of the regulatory agencies to approve the merger. By the time of the Oracle announcement, I thought I had screwed it again, losing my best chance to get rid of what I had of Sun; but that wasn't the mistake I made, I should have observed that the market itself had merged Oracle and Sun (almost all of my customers who run Oracle run it on top of Sun, anyway, the correlation is undeniable), and I should have remembered the Dvorak argument about Oracle killing MySQL using Sun as a proxy. Further examination about Sun's leadership at initiatives such as the computing grid are an strategical theater of operations that Oracle has been slow to position itself at. With Amazon.com's EC^2 (Elastic Computing Cloud) and all of those other cloud initiatives taking hold, Oracle needed something powerful to help them succeed at their belated entry in that space.

This acquisition makes a lot of sense to me. The financial journalists have already discussed the obvious reasons why Oracle has a relatively easy task of making this acquisition work; just the advantages to supply truly integrated platforms to customers is enough to justify this acquisition, but at deeper strategic reasons the acquisition makes even more sense.

The really interesting question, that I dare not forecast about, is what is going to happen with MySQL, Java, OpenOffice, and VirtualBox; depending on how you look at it, MySQL and VirtualBox either cannibalize pre-existing Oracle businesses, or represent entries into markets that Oracle is not strong at today, so, it's difficult to forecast in what direction would Oracle ultimately move. About Java, I don't see whether Oracle will treat it with indifference (dis-investment) or would try to steer it towards helping some strategic initiatives. About OpenOffice, I am curios to know if Oracle really wants to intensify the war against Microsoft's sacred cash cows. Open ZFS, Solaris and Solaris are clearly valuable assets that would continue to help Oracle given their orientation towards high end performance, the segment at which Oracle wants to remain as strong as ever. All of this lack of clarity prevents me from transferring my shares to Oracle, but furthermore, I think Oracle suffers from a condition that makes me abstain from taking bullish positions: Oracle does not operate in a market at which the common people will eventually become customers, but only a high-end that it is not clear to me that it will even continue to exist. This is like nVidia: Good company and all, they began doing 3D accelerators for a high end segment of the market that was bound to become mainstream in due time; and it became mainstream, and nVidia became a major player in the industry. But today, its market segment is shrinking to the very few people who require absurdly high computing capabilities, therefore it is very risky to get into bull-side.

Finally, this acquisition provided me with something to hunt for in the stock market: technology companies that are struggling and the market has merged its products to those of much stronger companies, mergers may be happening.