Sun Buys Cobalt
19, 2000 - Sun Microsystems, Inc. has said it will acquire Cobalt Networks
in a stock-swap deal valued at roughly $2 Billion. Sun is a leading manufacturer
of Unix-based computers, while Cobalt is a leading manufacturer of computers
known as "server appliances". Server appliances are specialized variations
of the servers commonly used as enterprise computing systems in a number
of companies. Appliances focus on performing specific tasks, such as Web
caching, and avoid the computing "overhead" required to be a general-purpose
the terms of the deal, Cobalt shareholders will swap each of their shares
for 0.5 shares of Sun stock. The acquisition is expected to be completed
during Sun's second quarter of fiscal 2001, which ends December 31, 2000,
subject to governmental approvals, Cobalt shareholder approval, and customary
Cobalt products will be sold by Sun's sales force, after the acquisition
Positives: This is generally a winner for both Sun and Cobalt.
Sun breaks into the server appliance market quickly, without expending
the time and effort to develop its own product(s). Sun also gets a credible
Linux hardware offering, without having to call the spin doctors to explain
away the previous anti-Linux statements. Cobalt gets a stable parent,
the ability to absorb the (hopefully) short-term losses associated with
start-up companies, and a large sales force. From a forward-looking business
standpoint, we feel this deal is a good thing, and we believe both the
consumers and the two companies will benefit from the acquisition.
These fall into the coulda/woulda/shoulda space. As strong a company as
Sun is (and has been) in the server and Internet spaces, we are a little
amazed that (a) it took them this long to get into the server appliance
market, and (b) they didn't develop an appliance themselves. Appliances
have been around for a couple of years, and the growth trend has been
there for at least a year - if Sun were going to buy an appliance manufacturer,
they should have done so in May, when Cobalt's stock was at/near its 52-week
low. This could have saved $350M-$400M. If Sun had chosen to develop an
appliance line, it should only have taken them nine-twelve months to develop
their first product, and if they had more than one hardware development
team, they could have increased the number of offerings.
We feel the positives are substantial, and most of the "not-so-positives"
are hindsight-based rantings. We expect Sun to reap significant rewards
from this acquisition.
Present Cobalt customers should see little, if any, effect. Customers
considering Cobalt, but wary of their long-term viability, should be reassured.
customers wanting server appliances should be mollified a bit, but should
still ensure that integrating a Linux machine into a Solaris environment
will not cause problems.
planning to purchase server appliances should continue to include Cobalt/Sun
products on their "short list". (This does not apply to users only willing
to consider Windows NT/2000, of course).