I find perplexing the gap between the performance record of Sun Microsystems, and the published perceptions of professional journalists. Professional journalists and the stock markets seem to have a low opinion of Sun, and I find this … well … stupid.

Sun started out as a scrappy little company that built kick-ass hardware and software. The smartest techies loved Sun (for good reason), and snuck in Sun hardware whenever possible. By the time of the dot-com boom, enough of those techies had ascended into upper management, and Sun hardware - in large dollar volumes - came in through the front door.

The systems that Sun sold in the late 1990’s were based on the scrappy (and very cool) systems built by Sun in the 1980’s. The per-unit price tags and total dollar volume in the late 1990’s were vastly greater than the 1980’s, but were sold largely on the reputation inherited from those older systems.

By the late 1990’s it was already clear that the big-iron Sparc platform (like all other big-iron platforms) was ultimately doomed. For the most part, the future belonged to arrays on mass-market x86 processors. As usually seems to be the case, the market easily takes a decade to absorb a change in technology, and match that change with a change of direction.

The Sun folk had a problem - very similar to the problem that IBM had with old mainframes. There is a continuing and highly profitable base of customers that use the old technology. Over time that market will slowly shrink. At the same time there are new technologies that need to ramp up, but that if sold to the old customers will not yield the same profits. Pretty much every company that finds itself in this position has trouble. Why would you kill your cash cow for a yet-unproven technology?

By the late 1990’s, Sun was no longer cool. Their technology - while good - was no longer especially interesting.

In the last few years, Sun “woke up” and launched a whole array of interesting new products, all of which look like very good bets for the future. Sales of the new products are growing strongly - though still far less than revenue from older products. The revenue from older products is slowly declining. All very predictable, and - so far as I can tell - progressing well.

What I do not get is the stock price. Sun’s revenues year-to-year are pretty steady - in fact, short of the current economic mess, they showed modest growth. Modest growth - when transitioning to new products from a declining old cash cow - is actually pretty good. Revenues are reasonably steady, growing, and Sun has a whole menu of new products with lots of potential. Sun looks very well positioned for future growth. Yet the stock price is wobbling downward. This makes no sense.

Interesting that you can easily find multi-year stock price data online, but revenue numbers for the same period are harder to get. (Is there somewhere with gross revenue numbers for the past 5-10 years?) Might explain the irrational stock price, in part, if investors are working off incomplete data. Also interesting are the somewhat recent investments in Sun.

I am surprised - and somewhat impressed - that Sun’s board has kept a steady course, in the face of the declining stock price. Given a couple years - time for new products to climb the adoption curve, and time for the current economic mess to resolve - Sun should do very well in the market. Presumably when revenue numbers head upwards, the stock price will (finally) follow.

The recent offer from IBM to acquire Sun makes perfect sense - for IBM. With Sun, IBM would get a raft of very nice products, for a bargain price. The only question was if the Sun board had lost their nerve, and were willing to sell out.

As it turned out - apparently not.