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The Sun Also Hovers

Last Tuesday, the Mac world went into a tailspin when the Wall Street Journal reported on Sun Microsystems’ efforts to buy Apple, saying that a deal was "imminent" between the two companies. Over the years, Apple has been approached by many buyers (including a serious offer from IBM two years ago), but this time the rumor mill revved into overdrive, aided in no small part by the Internet and any number of people saying they’d heard from "inside sources" that it was a done deal. Rumors were further bolstered by CEO Michael Spindler and Chairman A.C. Mike Markkula’s performance at a crowded shareholder’s meeting, which was long on generalizations and short on specifics of how Apple plans to return to profitability.

As usual, reports of Apple’s sale have been somewhat exaggerated. At this time, no deal has been struck between Sun and Apple, and talks are apparently breaking down. According to published reports, the main sticking point has been price, with Sun CEO Scott McNealy offering $23 a share for Apple in a stock swap deal, and Apple asking for $33 per share. Since Apple must keep shareholders in mind, Apple would have a hard time accepting less than market price for the stock, and Sun may now be playing a waiting game to see how low Apple’s stock goes before revising its offer. Although buoyed last week by rumors of a Sun takeover, Apple’s stock price has been declining and is around $29 a share as of this writing.

Today, Apple took out full-page ads in a dozen U.S. newspapers, urging customers to "keep the faith" and emphasizing that the "top priority of Apple’s board and management team is to take action to prepare Apple for its next chapter of growth and profitability." Meanwhile, rumors are circulating that Apple might be looking for another buyer, such as Motorola or Sony. Reportedly, former suitors Oracle and IBM are not interested.

Historically, reports of Apple being sold to another company are almost predictable in their regularity – heck, with a good calendar program, you can probably pencil in when the next rumors are likely to start. Though some feel Apple and Sun would be a good match, others note the $6 billion Sun is smaller than the $11 billion Apple and that buying Apple would dilute earnings for some time. It’s also worth noting that though Apple posted a $69 million loss last quarter and is expected to post a larger loss next quarter, PC clone maker AST Research, Inc. posted a net loss of $128.6 million for its second quarter, and Unisys Corporation reported a whopping $676.8 million loss for the final quarter of 1995, which includes the cost of eliminating nearly 8,000 employees. Both companies had net revenues in 1995 that were considerably smaller than Apple’s, which serves to point out that Apple doesn’t have a problem bringing in money but rather with turning a profit. It’s unclear how a merger with Sun (or another company) would allow Apple to increase its profit margin without alienating its remarkably loyal customer base.

BusinessWeek’s latest issue did a cover article about Apple’s problems, and Neil Ticktin <[email protected]>, publisher of the Macintosh developer magazine MacTech, weighed in with some interesting comments.

"It never ceases to amaze me what happens when a media feeding frenzy starts. Your latest issue’s cover broadcasts: "The Fall of an American Icon." This "Icon" had a profitable 1995, increased revenues/unit sales, an expanding developer base (the best future indicator), superior products, and many strategic moves about to come to fruition. Yes, this company had a quarterly loss and layoffs (in an industry fraught with similar reports and underwhelming profits). But, to paraphrase text deep within the article, the loss "won’t put much of a dent in its balance sheet" and the layoffs "won’t match the trauma of 1985."

"Yes, this company is Apple Computer, Inc. – the company the press loves to hate. Compare this article to the same issue’s positive comments on the "revolution" taking place at Daimler-Benz, which reported a $4.2 billion loss for 1995 and is hindering the German economy. Yes, Apple has problems to solve, but does this coverage seem even-handed?

"By the way, most of the people I know appreciate the media’s help in driving down Apple’s stock price so we can buy more of it. After all, when the press focuses on another topic, we’ll be laughing all the way to bank as Apple stock goes up."

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