Sun Micro; The Poster Child For Why Companies Should Be Allowed To Die


Start-ups old and start-ups new …

For those who follow it closely, the business world, especially high tech, can offer the most interesting juxtapositions of events.


For example, this week I found myself in Los Angeles tag-teaming the keynote speech at Gov. Arnold Schwarzenegger’s Conference on Small Business and Entrepreneurship. It was the first such gathering of this kind since President Reagan held a similar event in Washington, D.C. in 1973. The chief technology topic of that conference was the potential impact of such new products as the pocket calculator and the fax machine.

Needless to say, this gathering was long overdue and kudos to the Governator (man, is he a big dude up close!) for sponsoring the event — and we can only hope that we see a similar event in Washington someday soon.

The heart of our speech was the fact that, despite our current economic troubles — and the even darker clouds on the horizon — waiting just beyond is likely to be the greatest economic opportunity, and boom, that any of us has ever known.

Why? Because of a unique intersection of forces: two billion new consumers (the biggest single jump in market size in human history), global broadband interconnection that will reach every corner of the planet, and the continuing impact of Moore’s Law — the idea that tech power will double every couple of years — which will put supercomputer power into our hands.

As you might imagine, this kind of good news got a very positive response from the crowd, which, like the rest of us, is feeling depressed these days about the economy, jobs and retirement savings. In the face of all of that, it was nice to bring an upbeat message to downbeat listeners.


Implicit in our message — as it was in the luncheon addresses by the governor and by Carl Schramm of the Kauffman Foundation (which is also behind the current Global Entrepreneurship Week), and by almost all of the presenters during the two day event — was the realization most of the new wealth and all of the net new jobs in our economy come from new, entrepreneurial enterprises.

Thus, if the only way out of our current economic predicament is to grow our way out — and I believe that’s true — then our only hope is foster entrepreneurship and help them to build healthy new companies … and not to prop up dying older firms in the misbegotten belief that they will in turn help restore the economy.

At this point, you are probably thinking I’m going to talk about the proposed bail-out of the Big Three U.S. automakers. But I’ll leave that to the experts and analysts in that industry. Rather, for my interesting juxtaposition, I want to discuss a troubled company on my own Silicon Valley turf: Sun Microsystems.

I don’t write much about Sun because, frankly, I haven’t found the company interesting in many years — especially since the departure of charismatic, always-good-for-a-quote Scott McNealy. In fact, it’s been a long time since I even understood why Sun Microsystems existed beyond a certain residual inertia from its younger days, when it dazzled the industry with its workstations and Java software platform.


But that was a long, long time ago, back when Sun — even though it had crossed $1 billion in sales — still had the bloom of dynamic start-up company. Back then, the company had a powerful esprit du corps, was led by a cocky, outspoken McNealy, and seemed to be on a path to overrun a lost Hewlett-Packard and a struggling IBM. I remember when the rest of the industry formed up around a new standard, ACE, designed to stop Sun — and McNealy came out and said, “ACE? All hat; no cattle.” That was the cockiness of Sun as a start-up.

Sun hasn’t been that company for years; indeed, it largely missed out on the boom. Still, the company had enough cachet and market power that, a half-dozen years ago I created something of a scandal by raising the question (in this very column) of why Sun Microsystems still existed.

What I said at the time was that I didn’t see the point of Sun anymore: its products were uncompetitive, its revenues, profits and market share — not to mention its stock price — were in a freefall, it was shedding thousands of employees in one round of lay-offs after another … and nothing seemed to suggest any other fate for the company than a long, slow slide to oblivion.

Would it be better, I asked at the time, if obsolete companies like Sun Microsystems simply ceased to exist, liquidated themselves and distributed the proceeds to shareholders and employees — thereby freeing both to find more productive roles with successful new start-up companies?


I got a lot of angry comments for that suggestion. And yet, here we are, six years later — and as I listen to speeches on the vital importance to our stalled economy of fast-moving, dynamic young start-up companies, I read on my computer that Sun was preparing to lay-off 6,000 more employees — 18 percent of the company — and that it’s stock value was now less than the total value of the cash and investments on its balance sheet. The latter number is usually a trigger for a quick acquisition by one of a host of suitors … but beyond a few wistful suggestions in the press that Apple might once again want to buy Sun (as if!) like it did years ago, no one seemed interested. Apparently, Sun Microsystems is now worth less than the sum of its assets. If the company was a stock option, it would be underwater.

So, I’ll ask the question again, a half-decade later: What is the purpose of a company like this? Why does it stay in existence? Other than providing salaries for 30,000 employees (who would have likely found much better jobs over the last few years in a booming Silicon Valley) what contribution has this once-great company made in the 21st Century?

Sun Microsystems is just the high-tech poster child for dead-man-walking corporations. Our economy is littered with them (though, happily, they probably number far fewer than in Europe), and they exert a tremendous, though rarely recognized, drag on our economy.

And that drag becomes even greater when we try to save them — or worse, bail them out. Surely there is a better way to put obsolete companies out of business rather than slowly wither away, tying up financial, intellectual and labor capital for years in the process.


Perhaps what we need is some kind of formal liquidation event — think of it as assisted suicide for companies in extremis — by which they can easily distribute their assets to all stakeholders, shut their doors and hold a big, drunken “gone out of business” party. Then, those assets could be recirculated back into the economy to, in part, serve as investment capital for new start-up companies — just as the employees would be returned to the labor pool, many of them bringing their experience to help run those start-ups.

The message of the Governor’s Conference on Small Business and Entrepreneurship was that good times await us just over the economic horizon. But we have to get there first — and that is going to take all of the entrepreneurial talent, innovation and investment capital we can muster. To leave all of those assets locked up in futureless companies is not only tragic, but it could even be deadly.


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