Can Sun Rise Again?

Sun Microsystems (JAVA) took a pounding on Wall Street on May 2. Weak financial results, announced May 1, stunned investors, and CEO Jonathan Schwartz’s strategy to transform the company will surely come under fire (see conference call transcript). Is there hope for Sun? I sure think so.

Here are two reasons why:

1. Software as a Service: Sun is pushing hard into the SaaS market, and the company’s recently acquired database — MySQL — is wildly popular for hosting SaaS applications.
2. Open Minds: Sun spent the 1990s writing closed operating systems for proprietary hardware. Sun’s commitment to MySQL and other emerging options — such as Ubuntu Linux on the server — is a welcome about-face.

Still, Sun could get smaller before it gets larger. Imagine transforming from IBM’s (IBM) big-iron mentality in the 1980s to Microsoft’s (MSFT) software-centric success in the 1990s. Such a leap would require a massive shift in resources, priorities and sales strategies. And that’s exactly the type of dramatic transformation Sun is trying to undergo right now.

But it won’t be easy. Monetizing open source could prove difficult. And bets on niche technologies like Ubuntu Linux may not pay off anytime soon — if ever.

Short term, the picture at Sun is dark: The company just disclosed a $34 million loss for its most recent quarter, and CEO Schwartz warned that sales to small businesses and government agencies hurt results, according to the Associated Press.

That’s especially troubling, since government is a key vertical that typically continues to spend on IT in a weak economy. Also, Sun isn’t exactly a small business titan, so Schwartz blaming weakness on that market raises some question marks. The company plans to cut 1,500 to 2,500 jobs to align costs with revenue, according to AP.

Still, I'm a long-term believer in Sun's strategy -- but this is going to take considerable time. Big, proprietary iron isn’t a big seller anymore. But Sun was smart to push deep into open source in 2007 and early 2008. Unfortunately, those efforts may not yield results for a few more years.

Disclosure: none

Comments

[petyaczar]

Sun Microsystems = Still the development platform of choice by the overwhelming majority of application developers.

Java = still the power behind internet and cell phone applications

Last quarter was a one time hiccup. IMO

Sun is the obvious remaining takeover candidate in the space.

ERGO Sun Micro systems is a screaming buy at this current price with a 3 month upside of about 20%+/- and a 1 year upside of nominally %60 +/-

IMO

[TheBarber]

There is one little problem with this sunny prediction: The so-called executive management team now comfortably ensconced in the top roles, have never, ever made a dime for the company. They are, to an individual, software guys, and the only people who have ever made money for Sun were systems guys. The latter are all gone, after several years of seeing the current crowd getting promoted well past their levels of competence, culminating in their assumption of the ultimate power positions. The last of the systems guys, David Yen, left a few weeks ago. With him departed the company's last, best chance for executive improvement from within. Time to start looking outside.

Mark Hurd, up for a real challenge???

[YouMustBeKidding]

If the hardware guys of a few years realized the only asset they had was Solaris, they wouldn't be in the trouble they're in. Linux exists because the hardware guys tried to lock up Solaris on their tin. Their SPARC tin underperformed x86, ergo Solaris almost died - courtesy of the hardware guys. The hardware guys confused customers with procurement agents - the software guys were the only value add in the dark years.

[JoePanettieri]

Completely Agree with YouMustBeKidding: Sun's software team is cleaning up the mess left by the hardware and systems people who tried to milk customers for high hardware margins.

[SteveThompson]

Also a very stupid move my Management to do a reverse stock split. Go look at companies like SILK that became KANA. They did multiple reverse splits and have lost record values. For example, how do you make a $3,500 stock become a 1.24 stock, you do multiple reverse splits.

When a company is doing badly, a reverse stock split is only just another way to lose value faster. The company was fed poor information which only supplements the comments above. The entire management should be held accountable.

[capgain]

With no pretense of having a deep enough tech background to posit a hardware/software analysis of Sun, I can see the obvious....Sun has a very valuable brand that is being squandered by an uncertainty of what it "wants to be when it grows up". And they are not alone. Anyone who reads the comments in these spaces, and does their homework, can probably identify a half dozen tech names that are in the process of re-inventing themselves while trying to protect the proprietary assets that brought them to where they are today.

From a marketing prospective, it's only natural to conjecture......what if A and B recognized that they both could capitalize on their own strengths while providing support in areas that need attention, i.e. marketing,customer support,monetizing their brands, etc. In the case of Sun, I see a win-win possible if they started a conversation with another "diamond in the rough" like Wind River Systems (WIND). The synergies that two companies such as these could provide to each other could be very interesting.