Sun Goes Down With Its Legacy Businesses

Sun Microsystems (JAVA) reported a nightmare quarter, elicited more cold Java analogies than I can count and announced layoffs due to a weak economy. Can open source move the needle at Sun and spark some growth? In a word: No.

Following Sun’s dismal quarter, Matt Asay asks whether open source can save the company. After all, Sun has acquired MySQL and has become a big open source community member. The game plan for Sun: Utilize open source to spur more sales of hardware and services.

The only way open source could reinvigorate Sun is via a breakup, a scenario that just won’t happen.

Why? Sun is saddled with too many big revenue legacy businesses for open source to make much of a difference standalone or in some sort of synergy strategy.

It’s telling that most of the Wall Street analysts were focused on Sun’s legacy business and weaker than expected server and storage revenue. Meanwhile, it’s highly unlikely that Sun’s open source business will ever compare to its other businesses.

To wit: Red Hat (RHT) – the most successful open source company – had revenue of $523 million for the fiscal year ending Feb. 29. Sun has almost $14 billion in annual revenue. In other words, the best case scenario for Sun’s open source business is to be a rounding error in the grand scheme of things.

Indeed, Sun mentioned open source and MySQL 17 times on its earnings conference call, but most Wall Street analysts sounded like Brent Bracelin at Pacific Crest Securities:

The fiscal Q3 (March) shortfall in revenue and earnings validated our concern that Sun’s exposure to legacy UNIX servers and tape storage products-which account for more than 50% of sales-heightens execution risks, particularly during periods when IT budgets are under pressure.

Sun’s argument is that open source will turbocharge the rest of its businesses, but the jury is still out on that one. IBM (IBM) is a massive open source player. Does it really move more servers? It’s a tenuous connection. Services and the urge to standardize have a much larger impact on IBM’s hardware sales.

Comments

[TheBarber:]

The people responsible for the Open Source strategy--the current so-called executive management team--have never made a penny. Anyone who thought that somehow, miraculously, that would change have been downright intentionally delusional. It's time for accountantability here, and that's the responsibility of the Board of Directors. Short of that, SMI would benefit from an outright shareholders revolt!

Shareholders unite! You have nothing much left to lose!

2008 May 02 08:23 PM

[fire_Jonathan:]

Jonathan has been the CEO for 2 years and Sun's stock price now is at its lowest since 2004. He got compensation of $13 millions for the Sun profits by doing the yearly laying off the workforce while poorly performed on the revenue. His (and his executives) initiatives of giving away softwares to make up the revenues on selling hardwares/services had miserably failed. It resulted into low or flat revenues. Jonathan S. should step down as CEO or the BOD should fire him.

2008 May 03 02:44 AM

[Rikky1:]

the sun sparc T line of processors has real promise due to its parallel threading execution model and very data center friendly footprint. problem they're having is it doesn't do transactions that aren't developed highly threaded very well hence you need a fall back server like their v line (490,890) but these are legacy and hosting center pigs so you're forced into the m series that's a better option but based on a design by fujitsu. another option is sun on x86. bad idea software compatibility (if even provided) is always last on the list.

2008 May 03 07:17 AM

[TheBarber:]

Rikky1--

If I understand this correctly, there is a way to mitigate the problem you delineate for T(n) processors. You employ Logical Domains (LDoms), assign some number of threads to each domain, have a single instance of Solaris running in a domain, and have Solaris do your process scheduling for you. That's a pretty effective way of taming otherwise not-well-threaded applications.

Shareholders unite! While you still have something left to lose!

Jonathan must go!

2008 May 03 07:13 PM

[steveballmer:]

They are about to go under! Thank Goodness!

2008 May 03 11:07 PM

[Paul/pams:]

Sun has fallen by the way-side with it's chip development for Unix, compared with companies such as IBM who have had a clear roadmap they have delivered on and which lives up to the performance hype. Anybody wanting to host new Unix based apps on anything other than Power 6 would be mad.

2008 May 06 12:46 PM