Point-counterpoint: Should Sun buy Apple? The publisher and editor square off in their advice to Sun CEO Scott McNealy By Michael McCarthy and Mark Cappel

February  1996

Sun and Apple have no more product-line synergy than any other pair of incompatible computer systems. Their cultures aren't particularly complementary. Java, the Internet, Pippin, and other new market opportunities are well and good -- but why would you invest $4 billion in a speculative crap shoot? Your Humble Publisher thinks there's another game afoot, and it's called "Save the anti-Microsoft Desktop."

In counterpoint, SunWorld Online's Editor-in-Chief brings up five reasons why a Sun-Apple merger should stay in the talking stages. In sum, Sun has old ghosts to fight and a cheaper alternative. (1,700 words)

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An Open Letter to Scott McNealy

Dear Scott:

I now see why Sun would benefit from buying Apple Computer.

It wasn't easy. Like everybody else, I was scratching my head over what Sun would get out of a purchase of Apple that would be worth the risk/investment of so many billions. Integrate into Sun? Move MacOS to SPARC? Use the Mac desktop on Solaris? Buy a loyal installed base (of an incompatible system)? Buy an (incompatible) position on the desktop? Do something with Java? Have somebody to make the Internet PC device?

None of these are strong enough - they are too risky, too long-term, too much like something IBM would do (you know -- buy the company, lose money, then shut it down). Or Novell (you know -- buy on vague expectation you'll be able to find some benefit, realize you can't, sell it off at half price). It's not like Sun to risk that kind of money on speculation. (Or risk the company -- you're paying for it with stock.)

Could you simply be planning to fix Apple's problems and turn it around? But that's an investment, not a strategy -- you wouldn't tie your stock value to that.

Not by itself, anyway.

Then I figured it out.

Apple represents the only substantial opponent to Microsoft on the desktop, the only thing standing between Microsoft and complete control over the desktop. Sun is battling Microsoft on the server, on the Internet, in the enterprise, and everywhere else -- but Apple, the only guy left on the block to battle Microsoft on the desktop, is screwing it up. A ten-year lead, and it blew it. Microsoft and Apple are the tortoise and the hare writ large. How frustrating, to see Microsoft get a free ride because Apple is so badly run.

But wait a minute -- that's all it is, really. Apple is badly run. It is selling more machines than ever before -- and losing money! It's so successful, it's going out of business. Apple is losing money on its low-end machines because a.) it doesn't really believe in competing on price and never has, so b.) its heart isn't really in it, and it's not running the most competitive operation at the low end.

And who is the leader in efficient engineering and manufacturing in all the world? Sun, of course. And who believes passionately in beating its rivals on price/performance as well as everywhere else? Sun again!

If Sun was running Apple, you can bet it'd be producing a competitive low-priced desktop system --and making a profit at it! (I once argued in SunWorld Magazine that Sun was the only Unix vendor actually making money on its sub-$5,000 boxes.)

Well, then, why not do it? Why not take over Apple and show them how real toys-for-boys engineers run a plant? If the main thing standing between Apple and near-term profitability is engineering and manufacturing efficiencies, buying Apple (at its present low valuation) and turning it around is low risk. Your investment will stabilize and pay for itself in the near term.

With added benefits: You'll save the only anti-Microsoft desktop vendor and thus jab a stick into the eye of MS Windows -- a very effective stick, properly handled.

That's your strategic motive for what in the hands of anybody else would be just a tactical turnaround situation.

And hey, all those other bright ideas -- pushing Java, the Internet, Pippin, a closer and smoother integration of Mac and Sun systems, access to retail for some Internet device, all those other wonderful, wild-eyed, long-shot, cockamamie schemes -- some of which might actually work and give you long-term benefit -- are free, just icing on the cake, and with plenty of breathing room for you to experiment. Meanwhile you've tripled the size of Sun, no trivial consideration.

The interesting thing is that Sun is probably the one company in the world best able to save Apple in this focused way. And worries about culture clash are overblown: First of all, Sun has bought so many discouraged Apple employees over the years that it probably understands what's really going on inside Apple better than Spindler does. Second, Sun is a kick-ass cowboy operation just like Apple was and ought to be again.

Your biggest challenge will be to clean the Aegean stables of all those Apple bureaucrats who think they know how to run the place. And do it fast so the good ones don't leave.

It makes sense. But I could be wrong. Scott, you might really have one of those vague brainstorms about integrating Apple into Sun, or leveraging some sideshow- experimental-unproven device Apple is working on, or creating near-term "synergies" for God's sake. You might be ready to bet three or four billion that an Apple buy-out will give you instant Java success -- who even needs the hardware division. If that's true, please stop right now and take a deep breath. It was such muddled thinking that led Novell to buy Unix without a clear idea what to do with it. Take your $4 billion down to the track instead -- it would be less risky playing the ponies.

Another Open Letter to Scott McNealy

Dear Scott:

Our publisher argues passionately in favor of Sun purchasing Apple. I'm less convinced this is a good idea, for five reasons.

1. Why buy the cow when you get the milk for free (or almost free). If Sun wants to join the Macintosh market it should just buy a license. While Apple is far from strapped for cash, I'm sure that if Sun wanted to take up arms in Apple's fight for the desktop, it could wave enough money in front of Apple's board to cut a deal. Wave even more money and I'll bet Apple would sell Sun complete source-code rights, allowing Sun to port MacOS to SPARC.

2. Apple Computer is a mess. Of course, if Apple wasn't mismanaged, Wall Street wouldn't be abuzz with these rumors, Microsoft wouldn't enjoy its dominance of the personal computer world, and Apple would be snapping up HP and SGI. Apple has lost managers at an embarrassing clip lately, customers are nervous about the future of their beloved Macintosh, and most importantly, employees (the real assets of a computer company) are demoralized and wondering who will get one of the 1,300 pink slips the Apple board promised its shareholders it would issue.

   Sadly, we're starting to see stories of large companies pulling Apple from their approved lists of vendors. This is horrible. Apple may not make fat profits on carload deals, but independent software makers love to see big installed bases at big companies. Once Apple loses its ISVs (which my colleagues at Macworld say is already starting), users stop buying, which causes other ISVs to drop off, and so on in an ever-tightening death spiral.

   Don't even look at Apple's value-added reseller program. By every measure Apple's VAR program ranks last among its peers.

   If Apple were real estate, it'd be a major fixer-upper. Were it a classic car, it'd be a basket case. The difference is you almost always make money with real estate. Which leads me to my next point...

3. Computer mergers and acquisitions do not work. Since the beginning of the computer business, there has never been a successful, in the long term, merger or acquisition. Ever.

   Only Silicon Graphics' acquisition of MIPS shows signs of life, which makes it a rare exception to the rule.

   There are just a few immutable laws in the computer business: Competition is fierce, the state of the art advances quickly, and customers are smart as whips. If a computer company screws-up for too long, no amount of money can save it. Scott, I suggest you acknowledge these laws of nature when Sun's board of directors asks, "How can Sun make this merger or acquisition a success in the long-term when the failure rate for this kind of transaction is almost 100 percent?"

   Sun's shareholders had better hope you have the answer.

4. Apple = consumer market. Sun = commercial & technical. Despite offering lethargic hardware lately, Sun retained its historic lock on the Unix workstation market. (Now with UltraSPARC in its arsenal, Sun should expect 1996 to be a very good year.) Sun is distinguished by sturdy hardware driving a flexible and powerful operating system tended by bearded wizards. Apple, on the other hand, empowers the masses with smiley faced systems crafted for the rest of us.

   These contrasting products reflect fundamental differences in corporate missions. Apple and Sun live in parallel universes. Were this the transportation market, Apple would be Chrysler and Sun Boeing. There is nothing Sun can teach Apple about selling computers to small-business owners, home users, artists, or K-12 educators. Sun can't expect to sell inexpensive Macintoshes to its core customers -- commercial and technical buyers -- the same way it hustles $15,000 workstations and $50,000 servers. McCarthy argues Apple can help Sun fight Microsoft on the desktop. Unfortunately, that battle is lost. To Sun's credit, it appears poised to fight for the next desktop -- Internet Terminals.

   Yes, Sun is noted for efficient production (with the exception of early SPARCstation 10s), but on a scale much smaller than Apple's. Sun may have genius forecasters coordinating assembly of 10,000 workstations a month. But it's unclear how Sun's manufacturing prowess can help it pump out 100,000 computers a month or predict buying patterns of fickle consumers during the holiday season.

5. Apple's board can find a better match. Obviously, this assumes Apple's board is even capable of thinking at this level.

   Late last month Motorola emerged as a potential suitor to Apple. Motorola manufactures Apple's CPUs, and is the "mass-customization" poster-child for consumer products with its plethora of cellular phone and pagers. Like SGI's acquisition of MIPS to guarantee a supply of CPUs, Motorola's acquisition of Apple assures Motorola its biggest CPU customer stays in business.

   Hmm, Motorola boasts of success selling consumer electronics, is a major Apple supplier, and offers a line of servers sold through a VAR channel exclusively -- sounds like synergy to me.

Add it all up, Scott, and I think you'll agree the pieces to the Sun-Apple puzzle just don't fit.

About the author
Mark Cappel is editor-in-chief of SunWorld Online. Cappel's covered Sun Microsystems since 1988.

About the author
Michael McCarthy is Editorial Director and Publisher of SunWorld Online and President of Web Publishing Inc.

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URL: http://www.sunworld.com/swol-02-1996/swol-02-editorial.html
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