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

Since then, Sun, whose name stands for Stanford University Network, has tried to reinvent itself by acquiring companies and expanding production of Linux-based computers, but failed to revive its stock price.

Analysts expect Sun to report a loss of $1.35 billion on sales of $12.8 billion for the fiscal year ending June 30, 2009, according to Reuters Estimates. In 2001, it reported an annual profit of $927 million on revenue of $18.3 billion.

Sun spokesman Shawn Dainas said the company has had productive discussions with shareholders but declined to elaborate.

He added that Sun's technology bets are paying off, pointing to "tremendous" growth in so-called chip multi-threading systems that can handle more than one set of software instructions at once, as well as open storage systems, which combine open-source software with standard hardware.

"We are in a complex industry and our growth plan and progress can't be easily measured by our stock price," Dainas said in an e-mailed statement.

KKR declined to comment, while Southeastern did not return a call seeking comment.

Influential tech analyst Toni Sacconaghi of Sanford Bernstein in June cited Sun as one of three tech companies that could face investor activism this year. The others were EMC Corp (EMC.N) and Lexmark International Inc (LXK.N).

"The fact that (KKR's presence) has not led to discernible improvement in Sun's profitability also raises questions," he wrote in a note. "These stocks are at or close to multi-year valuation lows ... and offer distinct opportunities for value creation."

One business that Sun could sell fairly easily is StorageTek, a data storage business that it bought in 2005 for $4.1 billion. Bankers estimated it to be worth $750 million to $1 billion today.

Oracle Corp (ORCL.O) could also be a likely buyer for Sun's software business, the bankers said.

One business likely to stay in Sun is MySQL, the open-source database software maker that it bought for $1 billion this year. MySQL's performance has not yet justified its price, though it is seen key to Sun's growth plans, a person familiar with that deal said.

"MySQL is pretty core if you want to be the largest open-source provider in the world," this person said. "Sun feels it's a very strategic acquisition."

Furthermore, if Sun sold MySQL to a rival open-source company such as Red Hat Inc (RHT.N), it is unlikely to fetch more than $300 million, the first banker said.

Despite the fire-sale prices that bankers are citing for Sun's assets, Global Equities Research analyst Trip Chowdhry warned would-be buyers to think twice.

"If you buy this company you are just going to buy baggage," he said. "The cost structure is through the roof. The product road map is nonexistent and customers are leaving in droves. When you see these three things, only a dumb company would think of buying Sun." (Reporting by Anupreeta Das and Jim Finkle, Editing by Tiffany Wu, Richard Chang)