Can Oracle help Sun get its groove back?

I have a certain soft-spot for Larry Ellison, CEO of Oracle, who is now buying Sun Microsystems for $7.4b. By many accounts Ellison is a mercurial character, but I’ll say one thing for him: he appreciates design.

Well, I have a rather self-centered reason for saying that. Shortly before I left Sun in 1996, the high-end servers I’d been the lead industrial designer on were launched. There was an event at Moscone Center, at which Ellison joined then-Sun CEO Scott McNealy on stage. He walked out in his shiny gray Italian suit, and the first thing he said, before launching into his canned speech was, “Can I just take a minute to say that these are the best looking servers I’ve ever seen. Usually they look like crap.” (Or words to that effect).

In fact, Oracle was one of the places we visited when doing competitive research for that generation of servers. It’s not obvious from the outside, but whole floors of Oracle’s iconic buildings on Redwood Shores in Silicon Valley are filled with servers from every company around, used for testing their software on different platforms. It was like going to the zoo - every species in one place.

It’s unclear at this point how the Oracle/Sun combination will be run, but it sounds like Sun will stay quite independent. I hope that with this new partner they can renew their vision though, which in recent years has been by turns absent or overly techno-centric (i.e. only open-source geeks cared).

Three years ago almost to the day when Scott McNealy announced his stepping back from CEO, I wrote

But Sun has always been a hot and cold company. It’s at its best when it has a clear vision, as it did in the early to mid-nineties, which then propelled it on to dot-com driven success. Though as the bust came on, it became clear that, as with many companies, the open spigot of customer cash had been hiding poor management and a lack of vision. Sun had got sloppy.

To my mind, Sun has not been able to recapture its mojo, and the stagnant stock price and poor earnings reflect that. Let’s hope that it doesn’t go the way of Digital, Silicon Graphics or Tandem, and, unlike those companies, remake itself with a renewed vigor and purpose.

The Sorry State of the Car Industry

I’ve been mulling for a few days about writing a post about the current crappy state of the US car industry, thinking about the $25 Billion proposed “bail-out”, the crashing sales, and even the crazy proposed merger of GM and Chrysler. But Thomas Friedman has pretty much written it for me, so go ahead and read it.

How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.

I’ll just add a few things.

Toyota will become number one

My prediction is that Toyota will move up from it’s #2 slot to be the #1 manufacturer by the end of 2009. Their sales have been impacted by the current economic crisis, just like everyone else, but not nearly to the same degree as GM.

And Toyota’s product portfolio is much more diverse and better protected against parsimonious spending. GM’s is far too heavily skewed toward large, expensive gas guzzling trucks and SUVs, and its small and inexpensive cars are fewer in number and not as good as Toyota’s (with a couple of notable exceptions such as the well-received Chevy Malibu and Cobalt). That doesn’t bode well for riding out a combination of tight consumer spending and credit, and still relatively high gas prices.

GM and Chrysler merger: Huh?

In what universe does the merger of GM and Chrysler make sense? Both companies are in terrible financial shape with the same combination of huge cost structures and poor sales. In fact, Chrysler’s product portfolio is even worse than GM’s: even more skewed to SUVs and big trucks, and its lower end and smaller cars have received universally terrible reviews (Chrysler Sebring, Dodge Caliber).

All of Chrysler’s hot cars are largely irrelevant in a spending-constrained environment: Viper, Ram pick-up, 300, Challenger. Its bread-and-butter minivan has been eclipsed by offerings from Honda and Toyota.

And a merger would certainly result in large numbers of lay-offs as the companies have massive duplication of product lines, production capacity, vendors, and staff. Unless the unions force them to keep the manufacturing workforce, which would just compound the fixed costs problem. Speaking of which…

Plenty of blame to go around

The prospect of a bailout, whether it’s for banks or car companies, makes me queasy. I’m no laissez-fair free marketer, far from it. But the disparity between the logic of bailing out companies that are “too big to fail” and not helping people with comparatively tiny mortgages (or small businesses) who are “too small to care about” is just too disturbing in its hypocrisy. The management of car companies have squandered innovation for decades in favor of lobbying favors, as Friedman points out, putting them in their now perilous position.

But the unions have played their part too, providing a level of cushion for their workers that no other industries have, and in the process helping drive the hand the feeds them into the ground by forcing massive cost structures (health care, retirement benefits, endless unemployment support). A bailout would just encourage that co-dependency and let everyone off the hook rather than calling them to the carpet for it and forcing them to change. Undoubtedly a reset of the compact between automakers and unions would cause massive pain for the near term, but in the long run it would get the industry back on its feet. And without it, they’ll just be back in this same position in 5-10 years.