24/7 Wall St.

There have been rumors that Dell (DELL) may feel it needs to do something with Sun (JAVA), now that Hewlett-Packard (HPQ) has cut a deal to buy EDS (EDS).

Dell may need to grow through M&A, but Sun will never be a target.

EDS helps build on a strength that HP was already expanding. Services are a large and growing portion of the HP revenue stream. In the last quarter, that operation brought in $4.4 billion of HP’s $28.8 billion in revenue. EDS augments that with another $5.5 billion to $6 billion a quarter. EDS runs an operating margin of about 6% on that.

Dell has a low-end server business and Sun markets more expensive servers. One of the troubles with buying out Sun is that companies are moving away from large and expensive servers and in the direction of the cheap servers marketed by Dell and HP. Sun’s products have become a part of a dying age of IT.

Sun also adds nothing to Dell’s operating income. The company only breaks even now, and revenue growth is at zero. Dell cannot take a lot of cost out of Sun. The operation is already cut to the bone.

Sun has enough trouble that it may not be an M&A target at all.

Douglas A. McIntyre