Can a white-knight bid rescue Sun Microsystems?

Earlier this week, my colleague Douglas McIntyre observed that Sun Microsystems (NASDAQ: JAVA) "is one of the worst performing large-tech companies in America." It seems that ratings firm Fitch agrees with his take as last night it slashed JAVA's ratings outlook from "stable" to "negative." As a result of the move, JAVA is trading just pennies away from its annual low of $4.51 this morning.

In a release, Fitch cited a litany of challenges facing Sun Micro, including deteriorating demand outlook, recent share losses in the server market, significant decline in gross margin, and the expectation for continued pressure on information technology spending into 2009.

Even more troubling, investors learned today that Sun's co-founder, Andreas von Bechtolsheim, is stepping down from his role as chief architect to work for start-up firm Arista Networks.

However, as bleak as things may seem for Sun, another report adds an interesting angle to McIntyre's suggestion that JAVA should be sold to the highest bidder. Southeastern Asset Management, a value investment firm, said Wednesday that it's boosted its stake in Sun Microsystems to 21%. The firm said that it plans to hold discussions with Sun's management "regarding opportunities to maximize the value of the company for all shareholders." And we all know what that's code for, right? Stay tuned to see how this potential M&A deal unfolds.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research.