Sun’s next step unclear after breakdown of talks with IBM

After the apparent collapse of acquisition talks between IBM and Sun Microsystems Inc., Sun faces a choice: continue looking for a buyer, change its management — or just keep plugging along as is.

Other companies seen as possible bidders for Sun include Cisco Systems Inc., which is trying to move into the server business; Fujitsu Ltd., which makes servers based on Sun's Sparc technology; or Hewlett-Packard Co., IBM's top server rival.

Meanwhile, there were rumors last week that Sun CEO Jonathan Schwartz could be replaced by chairman and co-founder Scott McNealy, who gave up the CEO job to Schwartz four years ago. But Schwartz was his protégé, and McNealy has publicly supported his successor's strategies.

Even if those rumors are off base, Schwartz has “a lot riding on showing growth or an exit strategy” for Sun, said Forrester Research Inc. analyst James Staten. Thus far, “neither one has come through,” he added, pointing to Sun's 11% year-to-year revenue drop in the quarter that ended in December.

In the spirit of pretending that nothing happened with IBM, Sun this week is scheduled to detail new systems that use the Xeon 5500 processor released by Intel Corp. late last month. In addition, Sun is expected to ship a 16-core Sparc processor called Rock later this year — more than 12 months behind its original delivery schedule for that chip.

But with all the uncertainty surrounding Sun's future, the big question is whether corporate users will continue buying new hardware from the company.

Because of the difficulty involved in switching to other technologies, some customers will keep investing in Sparc systems if they need to add processing capacity, said Nathan Brookwood, an analyst at Insight64 in Saratoga, Calif.

But Staten said that even before the acquisition talks began with IBM, many Sun users were thinking about Linux and x86 systems as alternatives to Sparc machines running Solaris. Changing platforms “is a center-of-mind question every three months among Sun customers,” he said.

And the economic recession is only making it harder for Sun to win server sales, according to analyst Judith Hurwitz at Hurwitz & Associates in Newton, Mass. “In down markets,” she said, “people run for safety.”