Richard Waters Total eclipse of the Sun?

If three years ago a company had $7.4bn of cash on hand, but now its entire market cap has fallen to $7.2bn, how much confidence would you have in the management?

That about sums up the state of play at Sun Microsystems. So why aren’t the private equity vultures circling? When the stock traded at a split-adjusted $15-20 it seemed that every buy-out artist in Silicon Valley wanted in. Now the shares are scraping a 13-year low of $9. With the US economy heading down and Sun admitting on Friday that it is heading back into the red, Wall Street seems to have given up on the Schwartz-Lehman turnaround.

One Silicon Valley banker I spoke to scotched any hope of a buy-out, even at these prices: the mess in the debt markets has made it hard to create the right capital structure (Sun used a big chunk of that $7.4bn for an acquisition, though it is still sitting on nearly $3bn.)

This person also discounted the chance of a strategic deal, though the server market might seem to be crying out for some consolidation (Sun’s share slipped to 10.5 per cent in the first quarter, according to IDC, with Dell overtaking it for the first time. A combination of these two would still not challenge leaders IBM and HP.)

Sun’s long-suffering shareholders are left with a tough decision. Is the company simply over-exposed to the US, and to the downturn in spending by financial service and telecom companies – and might it therefore bounce back strongly in better times? Or, despite the success of its Niagara servers, does it have the wrong mix of products – too dependent on the shrinking market for high-margin corporate servers, too weak in the high-volume machines that the “cloud computing” future requires?