Friday, September 01, 2006
And Simon Will Get Back Together With Garfunkel.
Is an Apple-Sun merger in the works?
Commentary: Why Apple really put Google's Schmidt on board
So reads the breathless this-could-be-big MarketWatch headline above a column by John Dvorak, the old-time PC Magazine columnist whose musings on the state of the computer industry used to be followed closely by anybody with an interest in the business.
That was up until around, oh, 1984 or so, when Dvorak—a longtime Apple-basher—dismissed the new-fangled invention called a “mouse,” which Apple had begun shipping with its machines, by saying “There is no evidence that people want to use these things.”
(Yes, kids, it’s true: computers used to be controlled by keystrokes. Ask your Mom or Dad about the “F” keys at the top of your keyboard.)
There are few computer-related innovations more revolutionary than the mouse—which was not developed by Apple but rather by the poor shlubs at Xerox PARC (Palo Alto Research Center), who invented a whole bunch of cool stuff, including the graphical user interface (ask your parents about that, too, kids) and Ethernet, without making a dime for themselves or Xerox.
Legend has it that Steve Jobs, on a tour of PARC, saw the “mouse” in its primitive stages, grasped its significance, and made it happen. Nowadays, of course, a personal computer without a mouse—what Dvorak dismissed as “these things”—does not exist.
In any event, for reasons that escape me, the world still pays attention when Dvorak produces one of his deliberately attention-getting columns, as it did with his “Apple-Sun” merger piece this week.
Let’s examine Dvorak’s evidence for making the case that, as he wrote, “Schmidt [Eric Schmidt, the Google CEO who recently joined the Apple Board of Directors] may have been brought in as the set-up pitcher for what may finally be the often rumored merger between Apple and Sun.”
Dvorak’s Exhibit A: Eric Schmidt used to work at Sun.
His [Schmidt’s] executive training began at Sun and he is still close to the company and its founders. Being the CEO at Google, a somewhat goofy high-energy creative company, should enable him to handle the Apple side of things. Nothing could be harder to manage than Google.
Think about this for, oh, thirty seconds—as Mr. Dvorak apparently did not.
Eric Schmidt is a guy who for one brief shining moment after leaving Sun had one of the biggest stacks of chips at the high-tech poker table, when he was CEO of Novell during its late-1990 glory days. Then Microsoft came along and destroyed Novell’s networking franchise in about as much time as it takes to say “I call.”
After Schmidt spent what must have seemed like a couple of decades, but was in fact only a year or two, missing earnings, laying off engineers and taking hits from Wall Street’s Finest, he left Novell, took his few remaining chips and went all-in by taking a job as CEO of a funky little search engine called Google.
And as everybody including Dvorak knows by now, Eric Schmidt drew an inside royal straight flush on the river card at the final Texas Hold ‘Em table at Binion’s. For one thing, he's a billionaire; for another thing, he runs what many people think is the coolest, most revolutionary, and most zealously missionary technology company in the world right now.
So Eric Schmidt is going to give up all that (excepting the billion dollars) in order to figure out which software engineer from Sun should get which cubicle in Cupertino?
I don’t think so.
Dvorak’s Exhibit 2: Apple’s stock price is high, Sun’s is low.
As of this writing the two stock prices have never been more skewed, making the deal attractive to Apple.
It’s true that Apple’s $50 billion market valuation (net of cash) is more than triple Sun’s $15 billion market value.
But Apple is, in fact, profitable, while Sun is not. So whatever Dvorak means by “the two stock prices have never been more skewed” (and I think he means one is simply larger than the other), Sun’s stock is in fact far more expensive than Apple’s.
So Jobs would be better off buying Apple’s own stock than buying Sun’s operating losses, whether or not one integer happens to be larger than the other in the stock tables.
Dvorak’s Exhibit 3: It seemed like a good idea 200 years ago, so maybe it still does.
In the past the deals have always fallen apart before they began because (among other reasons) the combined companies would not have an acceptable CEO. Neither Scott McNealy nor Steve Jobs nor John Sculley nor Mike Spindler (not to mention Gil Amelio) seemed capable of handling a combined operation.
With today's two CEO's, Steve Jobs at Apple and Jonathan Schwartz at Sun, this continues to be true. But with Eric Schmidt in the game as a middleman it'squite possible that he could take the reins of such a combined operation and make it work
Dvorak really dredges up ancient history here, with names like John Sculley—the John Delorean of the computer business—and Gil Amelio, a guy maybe ten people remember, who briefly ran Apple during the dark days of the mid-1990s.
Which leads to the fourth and weakest piece of his evidence that Sun and Apple are headed for a merger—
Dvorak’s Exhibit 4: Apple wants to sell more servers.
Apple is looking to make a splash in the server market to solidify its position there, but it does not have the credibility of a Dell, HP, IBM or a Sun despite the quality of its offerings, and it would love to grow that very profitable side of the business. Sun is positioned to make another run at server dominance as this is written, thanks to its superstar engineer and co-founder Andreas von Bechtolsheim.
I don’t know Steve Jobs, and I don’t know Eric Schmidt, and I don’t know Andy Bechtolsheim, and I don’t know John Dvorak.
But anybody who thinks that Apple—which revolutionized the personal computer industry and then the music industry, and is now on the verge of revolutionizing the television and movie industry—is going to spend $15+ billion to “make a splash in the server market,” well, they might as well be wishing for Simon to get back together with Garfunkel.
Or, even less likely, I think, a return to the pre-mouse days, when computers played pong and were controlled by F-keys…and people wrote columns to explain how to operate the damn things.
I Am Not Making This Up
© 2006 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
Posted by Jeff Matthews at 9:36 AM