RPT-UPDATE 1-DEALTALK-Sun Micro pressured to sell, buyers wary

(Repeats story first issued Nov. 11) (Adds details on Sun's product growth)

By Anupreeta Das and Jim Finkle

SAN FRANCISCO/BOSTON, Nov 11 (Reuters) - Sun Microsystems Inc (JAVA.O) could be forced to sell itself or some of its assets as the economic crisis worsens problems facing the high-end computer maker, which has been struggling since the Internet bubble burst in the early 2000s.

But tight credit markets and the challenge of valuing Sun's intertwined software, hardware and services businesses could put off potential buyers such as rival server makers Hewlett-Packard Co (HPQ.N), International Business Machines Corp (IBM.N) and Dell Inc (DELL.O), bankers and analysts say.

Last month, investment firm Southeastern Asset Management disclosed that it had become Sun's top investor with a fifth of its shares, and said it might go around the technology company's board to talk to "third parties" about alternatives.

Other investors like private equity firm Kohlberg Kravis Roberts & Co [KKR.UL] may also support a sale to recover their money. KKR holds a seat on Sun's board and had to write down the value of its $700 million debt investment in the company.

"I have not seen a convincing strategy laid out by management," said Shebly Seyrafi, an analyst with Calyon Securities, adding that Sun may be pressured to split up the company if management failed to turn around the business.

Sun shares have nose-dived 77 percent this year, more than double the decline in the Nasdaq Composite Index .IXIC, to around $4, a 13-year low. The stock is down 98 percent since 2000, the peak of the dot-com boom.

Investor frustration over the stock price has been compounded by Sun's high operating expenses and failure to boost profitability. In October, Sun posted a $1.7 billion quarterly loss and Chief Executive Jonathan Schwartz said cost-cutting measures were in the works.

In addition to HP, IBM and Dell, three technology bankers listed Cisco Systems Inc (CSCO.O) and Japan's Fujitsu Ltd (6702.T), which already has a business partnership with Sun, as natural bidders. They spoke on condition of anonymity as they would vie for the business if Sun puts itself in play.

But these companies may not want to take on the challenge of integrating Sun, which has a market value of about $3 billion, given the turbulent economy.

Sun may have more luck splitting its hardware and software divisions and selling them separately, although valuing the parts may be a challenge because they are tightly linked.

"I don't think there's a buyer for the company as a whole today," said one of the bankers, who has discussed with some of the companies their interest in buying Sun.

DOT-COM VICTIM

Sun rose to prominence during the 1990s when tiny start-ups flocked to buy its high-end computers, which run on its Solaris operating system and have long been widely used in the financial services industry.

When the Internet bubble burst in 2000-01, funding for start-ups dried up along with much of the demand for Sun's computers. Internet companies started buying cheaper Linux servers.