The markets are buzzing this morning with the news that IBM (IBM) is about to buy Sun Microsystems (JAVA) for $7 billion. Shares of JAVA are up about 60% in this morning’s trading.
This would be a bold move on IBM’s part because Sun hasn’t been a very strong stock lately. For the fourth quarter, JAVA’s earnings-per-share dropped from 50 cents to 15 cents, and sales dropped by 11%. Whenever profits drop faster than sales, you know that profit margins are under pressure. As a result, the company has announced substantial job cuts.
My take: I rate IBM a buy, but I don’t think this is a smart move on their part. Sun will most likely be an underperforming asset probably for the next several quarters.
