Sun Gaining Share from HP, IBM and Dell, or Healthy Tech Market?

 |  Includes: DELL, HPQ, IBM, JAVA
by: David Jackson

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Sun Microsystems Swings to a Loss While Sales Rise

  • Summary: Sun Microsystem's Q2 results: Revenue up 29% to $3.83 billion. Net loss of $301 million or $0.09 per share included $156 million of charges for the Storage Technology Corp. acquisition and others. Sales of servers rose 14%, overall product sales rose 30% to $$2.5 billion and service revenue rose 24% to $1.3 billion.
  • Comment on related stocks/ETFs: Sun's stock (NASDAQ:SUNW) rose just over 1% in late trading after the results were announced. Despite tepid revenue growth from IBM (NYSE:IBM), Dell (NASDAQ:DELL), EMC (EMC), Intel (NASDAQ:INTC), and SAP (NYSE:SAP), Sun's results challenge the assumption that enterprise technology spending has slowed. IBM CFO Mark Loughridge claimed on IBM's conference call that: "... a number of transactions around the world, we have seen that the sales cycle for enterprise clients appears to have lengthened, as customers have increased the level of scrutiny and approvals on their transactions. So we saw that most distinctly as we closed out the quarter in the third month... While growth in our SMB [small and medium business] customers has remained generally solid, growth in enterprise space slowed..." However, Sun's results don't support that conclusion. In a remarkable entry on his blog, Sun CEO Jonathan Schwartz wrote last night: "We see no global slowdown in IT. Despite what one competitor said. Our key customers (those that view information technology as a competitive advantage, not a cost center) are continuing to invest. They're investing to drive on-line relationships, fuel competitive advantage, and drive efficiencies - but mostly they're investing because they see a return." One possibility is that Sun is now taking market share, due to its use of AMD chips and Linux as well as its own proprietary processors and software. IBM reported that its server sales were down year over year due to supply chain issues, so Sun certainly took share from IBM. And Dell's recent announcement that it would start using AMD chips in servers is probably recognition that Dell has lost market share to Sun as well. Now the question is whether Sun took share from HP, which leads the server market. HP has yet to announce its fiscal Q3 (quarter ending July 31st) results, and we know that HP took share from Dell in PCs. But did it lose share to Sun in servers? Resources: Sun's press release, the complete Sun conference call transcript, IBM's conference call transcript, and the transcript of HP's conference call for the quarter ending April 30th.