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What was Sun thinking?

Paying $4.1 billion to buy its way back into customer hearts is a big gambit, says CNET News.com's Charles Cooper.

You can partly thank the regulators in Washington, D.C., for Sun Microsystems' $4.1 billion cash acquisition of StorageTek.

What with some of the confusing--make that idiotic--federal regulations governing corporate behavior that have appeared the last couple years, there's a near bottomless demand for big storage systems. After the passage of Sarbanes-Oxley and HIPAA, CEOs are so keen on covering their posteriors these days that there's no such thing as too much documentation. Identity and management access is the hot ticket these days as every management team worth its salt wants to tout how tough it now is on compliance.

If Sun's board of directors weren't on quaaludes, Scott McNealy would have joined Carly Fiorina on the retired CEO rubber chicken circuit long ago.
That much about Sun's Thursday wake-up announcement is plain to see. And it's easy to spot another reason why Sun was willing to part with some of its famous $7.6 billion cash hoard to buy StorageTek, a manufacturer of tape drives and network-management and backup software. Sun needs to do something to get Wall Street off its back. The company's stock has been a dog. Shares hit a 52-week low of $3.29 on Aug. 12 and are still stuck below four bucks. If Sun's board of directors weren't on quaaludes, Scott McNealy would have joined Carly Fiorina on the retired CEO rubber chicken circuit long ago.

So in theory at least, buying a company with more than $2 billion in sales could put Sun back on the growth path--especially considering its newly added heft in the $65 billion storage market.

Sun claims that 35 percent of the archived data on the planet is housed on StorageTek equipment. Throw in the some-odd 1,000 new sales representatives coming along with the deal and you've got the makings of quite a large enterprise storage company with deep data center expertise.

Maybe that's a wise gambit. There's not much upside in being known as a software company that gives away the code of its products for free. Critics say Sun's open-source moves seem like more of a come-on to get customers off its back than any real sales driver. So why not become more of a turnkey provider and simplify customers' lives? With StorageTek's products in its arsenal, Sun will now be able to market itself as a company that can offer credible server, networking and data management solutions. As McNealy put it, "Why does Ford do tires and windshields? Because it simplifies the problem for the customer in a big-time way."

Sun still has to make a better case why investors should applaud a transaction that reduces the company's cash by 40 percent and may not do much to spike sales growth or profitability.
But Sun's a lot like the proverbial baseball team that looks great on paper but always manages to disappoint. Each time McNealy or his No. 2, Jonathan Schwartz, gets through talking, I walk around starry-eyed for an hour thinking, "Gee, that really makes sense. Those guys might really be onto something."

Then the aura wears off and I'm back to wondering what I was smoking in the first place. Over the last several years, Sun often appeared to simply throw a lot of stuff at the wall and wait around to see what stuck. It's obviously not that slapdash, but the company still hasn't come up with a coherent message to excite customers--and by extension, Wall Street.

Sun still has to make a better case why investors should applaud a transaction that reduces the company's cash by 40 percent and may not do much to spike sales growth or profitability. (The folks at Prudential Equity Group said they would rather have seen Sun buy back a billion shares and fire 10,000 people!)

A while back, one analyst quipped that Sun functioned well as a bank but not so well as a computer company. If this megadeal fails to pan out, Sun won't even be able to claim that backhanded compliment.