Don't you think Sun would love a do-over on StorageTek?

In June 2005, long before most people ever heard of subprime, LIBOR, or credit default swaps, Sun Microsystems thought it was a grand idea to buy StorageTek for the princely sum of $4.1 billion. At the time, the thinking at Sun was to become more of a one-stop shop for its corporate clientele. On paper, at least, it sounded like a plausible idea.

But that was a veritable eternity ago. With the market's sudden meltdown in the last month, corporate spending--at least on Sun's products and service--has been hit especially hard. So it was that Sun warned this afternoon of a wider loss on lower revenue. The company said that it's going to lose 25 cents to 35 cents a share.

That figure includes a $60 million restructuring charge but not the potential goodwill impairment. Sales are expected to come in between $2.95 billion to $3.05 billion, as compared to $3.21 billion for the first quarter of fiscal 2008.

What really stands out in the warning is the paragraph devoted to a discussion of what largely was the StorageTek business. To wit:

Based on a combination of factors, including the current economic environment, Sun's operating results, and a sustained decline in Sun's market valuation, the company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value. As a result, Sun is currently conducting an interim goodwill impairment analysis to determine the required amount of the non-cash impairment charge, if any. As of September 28, 2008, prior to the impact of this potential non-cash impairment charge, Sun's total goodwill balance was $3.2 billion of which $1.8 billion relates to reporting units that may be impaired.

Sun also paid about $1 billion to buy MySQL in January. A spokeswoman said Sun will publish final numbers on October 30, when the company holds its quarterly earnings call.

At the time of the StorageTek acquisition, a Forrester analyst by the name of Frank Gillett had this to say:

"Buying a company that is primarily tape technology today doesn't look like an exciting play for a forward-thinking company like Sun....It appears like they have some strategic stuff in mind in the long run, but I don't think that this acquisition is being justified on yet-to-be-announced technology. In the short run (the logic) is an open question."

Pretty prescient.

[cneu319]

I'm not sure how "the company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value" equates to "what largely was the StorageTek business."

I've read the announcement. It says "With the decline in global markets and economic hardship among our customers, we experienced a significant decrease in demand, principally for our high-end systems. As a result, our Q1 financials will fall below expectations."

It does not mention what high-end systems. And, it makes no mention of StorageTek. In fact, there is no mention of the words: storage, disk, or tape.

So, either Mr. Cooper has additional information regarding this announcement which he omitted to mention or this is just another piece of Internet journalistic garbage. He should quote the additional information or lead with something with a little less sensationalism than "Don't you think Sun would love a do-over on StorageTek?"

[meh130]

This sound more like it is related to the MySQL acquisition. MySQL was all intellectual property, and no real assets. It would take a closer look at the books and how much each acquisition was accounted for as goodwill. Almost all of MySQL's $1B price would be goodwill.

[Galaxy5]

If I was Sun, I'd want a do-over on the last five years....

[joetesta70]

Is Sun still in business? I imagine Sun, DEC, Novell and Netscape are living in Florida by now.

[Bob_Josiah]

It's interesting to compare Sun Micro with CNet. CNet ended up having to throw in the towel, to be subsumed under CBS because folks like Charlie Cooper totally lost credibility with readers, and CNets advertising revenues nearly dried up. Charlie is a really good guy, who's pretty much out of step with the mainstream, so like Dvorak, he tends to write sensationalistic stuff in hopes of driving page views (how CNet's reporters are compensated). It's really sad to watch what's happening, maybe we can hope for a merger with Microsoft or Yahoo!, so CNet could bring back a semblance of technical credibility. With folks like Charlie around, they'll never drive any readership, which is really sad. Bring back the old CNet, the one with editorial might, not the one trying to be the National Enquirer of tech. Charlie needs to go to Florida, along with his TRS80.

[jim kerstetter]

Bob, you're attacking the source rather than the argument. Let's address the questions: Is Sun Microsystems better off today than five years ago? Ten? Was acquiring StorageTek a good move? I'm sure you have more to offer the community than "this guy is trying to be sensational and he uses an old computer and his company is very bad." I paraphrase, but that's essentially what you wrote without addressing any of the questions regarding Sun. Charlie is not being sensational. He's trying to understand why Sun, with so much intellectual heft at its disposal, just announced a significant loss and impairment charge. These are important concerns regarding an important company.

[idfubar]

Wow, how do you follow a comment that mentions a "trash-80"...?

I agree that it's not entirely clear the comment pertains to StorageTek as it does to MySQL AB; nevertheless, it's nice to see someone making an effort to dig through the numbers - kudos!