Sun Reports 20 Percent Q3 Revenue Drop

The quarter, which ended March 29, proved a tough one as the company's product and services revenue both fell compared to last year. However, because Sun took what for it was the unusual step of not holding a conference call to discuss the results, it did not shed any outlook on the future or on the pending Oracle acquisition.

Revenue for the third quarter was $2.6 billion, down 20 percent from the $3.3 billion it reported during the same quarter in fiscal 2008. That included a 17 percent drop in North American revenue over the past year.

Sun also reported a loss of $201 million, or 22 cents per share, a significant increase over the loss of $34 million, or 4 cents per share, it reported last year.

The only real bright spots in Sun's results were a positive cash flow from operations during the quarter of $178 million and a 4 percent increase in billing across its software, Open Storage, Solaris-based SPARC CMT servers, and x64 servers.

The results seem to indicate that Oracle may be getting less from Sun than it originally, and literally, bargained for.

Oracle last week said it plans to acquire Sun in a $7.4 billion deal announced shortly after an earlier bid by IBM to acquire Sun fell through.

Sun's overall server sales fell 26 percent in terms of volume compared to the same period last year, with its x64-based server business faring somewhat better as volume dropped 14 percent, which is what might be expected given the impact the economy is having on the server business in general.

As a result, revenue for Sun's overall systems business, including all its server lines, fell 29 percent for the quarter, with its SPARC enterprise server revenue falling 28 percent and its x64-based server revenue falling 22 percent. But those drops were tempered somewhat by a 3 percent rise in Solaris SPARC CMT server revenue.

Software, which is one of the key areas that Oracle will be looking at as the acquisition closes, did better, with revenue rising 27 percent compared to last year. That included a 27 percent jump in Java revenue and a doubling in sales of MySQL and other infrastructure software, balanced somewhat by a 30 percent drop in sales of Solaris, management, and virtualization software.

Total storage sales fell 20 percent year-over-year, led by a 34 percent drop in disk and storage-array sales, Sun said. However, tape sales actually managed to eke out a 3 percent rise, while Sun's Open Storage sales rose 63 percent, albeit from a small base last year.

Sun's Open Storage initiative, introduced in July, calls for the increased use of industry-standard components to enable customers to be able to quickly expand storage capacity at a low cost.

Sun's total services revenue dropped by about 13 percent over last year, led by a 20 percent drop in professional and education services, Sun said.

Josh Farina, an analyst with Technology Business Research, a Hampton, N.H.-based analyst firm, wrote in a report after Sun's financial report was released that Sun's sales may have been hurt by the uncertainty of its products' future resulting from the prospect of Sun being acquired.

Farina wrote that the drop in Sun's x86 unit shipments seems to have come about as a result of increasing competitiveness by IBM's POWER systems line.

"Customer spending remains weak due to the down economy and customers are being increasingly cautious about who they purchase from " which we believe is leading customers to purchase from vendors with solid futures, such as IBM and HP," Farina wrote. "TBR expects the upcoming quarter will be equally challenging for Sun as uncertainty remains about the future of Sun's hardware segment, unless, of course, Oracle and Sun release more details about post-acquisition plans."

Farina also wrote that Sun may have put its restructuring plans on hold until the Oracle acquisition is finished. "Based on Oracle's plans for driving profit from the Sun acquisition, TBR expects a reduction of 10,000-15,000 Sun employees as a result of Oracle's takeover --- a restructuring that seems even more likely given the fact Sun's restructuring plan appears to have been halted," he wrote.

The economic downturn continued to weigh on Sun's customers, especially in its higher-end enterprise customers, said Jonathan Schwartz, CEO of Sun Microsystems, in a prepared statement.

"With a continued focus on operational alignment, a strong cash position, and the market increasingly looking to open source innovation as a vehicle to escape proprietary vendor pricing, we believe Sun is well positioned to weather the downturn and ultimately become the biggest beneficiary in the open source revolution in both systems and software," Schwartz wrote.