Sun Slips To Loss In Q2

Despite success in its software and entry-level server businesses, Sun Microsystems took a big hit in its revenue and earnings in its latest quarter.

Improved sales of entry-level SPARC and x86-based servers and increased billings for its Java and MySQL software could not mask a drop in overall revenue of 10.9 percent to $3.6 billion in its second fiscal quarter, which ended Dec. 28, Sun said on Tuesday.

The company also reported a loss of $209 million, or 28 cents per share, a dramatic drop compared to its profit of $260 million, or 31 cents per share, during the same period last year.

Sun has the best technology, but just has trouble getting the message across to customers, said Mark Teter, CTO of solution provider Advanced Systems Group, a longtime Sun partner.

"Sun continues to develop on its software portfolio, which is very promising for IT to save money," Teter said. "The challenge is getting people to change the way they buy IT solutions. Sun has a great software and hardware portfolio, but is challenged to deliver its value to the IT community at large."

Teter cited Sun's Open Storage initiative and its software offerings as areas where customers could see major savings. For instance, he said, one of Advanced Systems Group's major clients contracted it to do the storage to support a huge Oracle implementation. However, that database, which is being built from the ground up, could have easily been done using Sun's MySQL, saving the customer millions of dollars if the customer had not been focused on Oracle as a partner.

It is a situation that Sun needs to address, Teter said. "Sun's technology needs marketing, but Sun isn't doing it," he said.

Sun's overall systems revenue fell 25 percent during the second quarter compared to the same period last year, despite a 31 percent increase in sales of Solaris SPARC CMT servers and an 11 percent jump in sales of its X64 line of x86-based servers, Sun said.

On the software side, overall sales increased 21 percent compared to last year thanks to a 47 percent increase in billings for Java software and a 55 percent increase in MySQL and infrastructure software billing, which overcame a 29 percent drop in sales of Solaris, management and virtualization software.

Sun's storage sales fell 13 percent compared to last year, with the only bright spot being its Open Storage products, particularly its Amber Road line. Amber Road, also known as Storage 7000 Unified Storage Systems, was introduced in November, and consists of industry-standard components and solid-state disk storage running Sun's ZFS file system.

Jonathan Schwartz, president and CEO of Sun, said that Sun's push into open source products like MySQL, Open Solaris, and Amber Road will help drive business going forward as customers start to see the value of open source. For instance, he said that 2,000 Sun channel partners are already trained to sell Amber Road, so that product line is poised for growth.

Sun's Amber Road competes against products from vendors that have high proprietary revenue streams, giving it a potential edge in customers looking for performance at lower costs, Schwartz said.

"Opportunities span every industry, every geography, every operating system, every platform. I haven't seen an opportunity in my career at Sun blossom as quickly as Open Storage," he said.

Despite the success of parts of its open-source business, Sun remains challenged, wrote Josh Farina, an analyst at Technology Business Research, in a research note after the vendor released its financials.

"Sun remains a key competitor in the IT hardware market, as the company is often included as a competitive solution to IBM and HP, yet, during a significant downturn in hardware sales and related services, Sun's open-source software provides little to fall back on, where competitors IBM and HP generate significant sales and profit from their diversified lines of business, including services, software and ubiquitous hardware segments," Farina wrote.

Sun, which in November announced a series of restructuring moves, including a layoff of 5,000 to 6,000 personnel, started to see the results of those moves during the second quarter, said Mike Lehman, Sun CFO and executive vice president of corporate resources.

The layoffs, however, have yet to start. Sun's head count actually rose by about 130 personnel during the second quarter, Lehman said. Layoff notices will be sent this quarter, he said.

The real benefits of the restructuring will be most apparent beginning in the first quarter of 2010, Lehman said.

As a result of economic uncertainties, Sun is not providing specific guidance for current or future quarters. However, Lehman said, the current quarter will be challenging in part due to seasonal issues.

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