Are we watching the final act for Sun Microsystems?

Of all the big companies on the Silicon Valley landscape, the next 12 months is going to be particularly brutal for Sun Microsystems. Sun remains one of the 10 largest valley companies by sales. But unlike many of its broad-shouldered  neighbors, it has never really recovered from the dot-com bust.

Yes, there were a few profitable quarters along the way. But following the report last week that  the company posted a $1.67 billion loss in the most recent quarter, it appears there aren’t many options left. It did a reverse stock split. It’s been doing modest-sized acquisitions. It’s had multiple rounds of layoffs. And it changed leadership three years ago.

The result? Not good. The company is in a situation you never want to be in:

“With assets far exceeding its current valuation, investors stand to make modest gains if the company decides to break itself up, or if it finally succumbs to the takeover rumors circulating for years.”

Once investors start looking at the balance sheet, and looking at the stock price, bad things will happen. As Merc scribe Brandon Bailey reported last week:

“Analysts have been expecting Sun to announce significant moves to shore up its business, especially since a Tennessee investment firm recently disclosed that it bought a 21 percent stake in the company. Representatives of Southeastern Asset Management have expressed confidence in Schwartz, but said last week they planned to have discussions with Sun “and/or third parties” about improving the stock value.”

Last week, executives told analysts on a conference call that Sun is “evaluating actions aimed at returning to profitability.” Great. But haven’t they been doing that for about seven years now?

Chief Executive Jonathan Schwartz said the company had plenty of money in the bank: $3.1 billion in cash and short-term investments. He insisted that Sun won’t sell off assets or business units to boost profits. He said to expect targeted acquisitions.

But that may not be his decision to make for much longer.

Sun has its annual shareholder meeting on Wednesday at 10 a.m. at its Santa Clara campus. Such events are usually dry as toast. And if that’s the case for Sun, then it’s good news. But I’ll be listening closely to see if shareholders have run out of patience.

There are two stockholder proposals on the ballot. One would drop the so-called “poison pill” provision that makes a hostile takeover more difficult. The other seeks more shareholder say on executive pay. And all directors are up for re-election, including Schwartz.

So there will be plenty of ways for investors to let Sun’s management know if they are in a rebellious mood.


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