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Sun's Head on the Block from Oracle Rescue

It's not that Sun's net revenue was down 25 percent in the third calendar quarter, year-over-year. It's not that the net loss of $120 million is that catastrophic, considering that at the same time in 2008, the company was down $1.68 billion. It's just that the company's prospects seem so limited and the outlook, so grim. The very action -- acquisition by Oracle -- that was supposed to save it now looks to be the finishing blow.

At a surface and yet I'd argue telling level, there is the Q1 FY 2010 earnings press release. Generally you'll have some sort of happy talk sitting at the opening. An attempt to make things sound hopeful, perhaps, or at least a stab at saying that the situation, while having been dread, is improving. No such bravado here. The release was nothing but four tables of numbers, no narration. That was sad to see, although maybe predictable. Sun's currently insurmountable problem is that it is waiting on a friend -- Oracle.

Given the amount of resistance that is mounting to the deal in the EU, the wait may be long. The EU is worried about consolidation in the database market. However, apparently Oracle is uninterested in making any concessions in that regard. Clearly My SQL is one of the big prizes that Oracle wanted, so you can understand why it would not want to give that up, particularly when you see that expansion into small and medium businesses, really the only area in which Oracle could significantly grow new markets in an industry that demands continued expansion, would depend on that product line.

In reaction, it would be unsurprising to see EU regulators get their backs up and delay the acquisition even more. But the longer this takes, the more trouble Sun will have. To a big degree, it's already been paying the price for Oracle's delay. Look at Sun's last public balance sheet and more than $1 billion in assets -- more than 10 percent -- has evaporated from the books just since the previous quarter.

If for some reason the deal doesn't get done relatively soon, the company faces what is likely insurmountable damage to its business, and then where does it go? No one's left to do an acquisition and, apparently, no no financial penalty for Oracle as the prevention would have been government action. Then Sun is exactly where it was: desperate, unable to find suitors, but now bleeding customers and revenue and looking for a place to lie down and die.

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