Sun Ready To Resume Talks, Should IBM Even Listen? (JAVA, IBM, HPQ)

Sun Microsystems Inc. (NASDAQ: JAVA) is seeing a bit of excitement this morning on word that it is ready to resume talks with IBM (NYSE: IBM).  We have been under the belief that this was coming after speaking with several technology contacts.  This is also on the heels of a report that Hewlett-Packard (NYSE: HPQ) is launching new servers next week in its new push to take market share in the sector.

The stock is up about 10% this morning after both Bloomberg and Reuters have said that Sun would be willing to resume talks if closing terms were better.  There is just one problem here, Sun has zero leverage.  IBM walked on it and as far as we have been able to tell there have not been any olive branches passed between the two companies.

It also depends upon who you believe, but blame has been placed on both Scott McNealy and on Jonathan Schwartz.  Either way, IBM might be nuts to go back after Sun this quick in the game.  The only good news is that earnings estimates have not been slashed and burned by analysts ahead of this last quarter’s report.  The bad news is that if Sun is really ready to go back to the table this quick then we wouldn’t exactly get too excited before it reports earnings.

There is a real risk at the business of Sun today, and that is the notion that it has an identity crisis over what the whole operation does outside of servers.  If IBM really wants it, maybe they should just pick a number to take the server business and let Sun fiddle with the rest of its operations.  But that deal seems even more unlikely than a huge premium acquisition from here.

So far we are seeing a 10% gain to $6.75 before the open on almost 800,000 shares.  Much of this has to be short covering.  Just in case Sun actually gets it right here.  There is a term here that kids use in their playground games called “DO-OVER!”… That is exactly what this is sounding like.

JON C. OGG