Sun silent on sorry server sales

Revenues plunge 20 per cent


Sometimes, you call the tune, and sometimes, you have to face the music. Or you can do what the top brass at Sun Microsystems did today and simply not host a conference call to explain financial performance in its third quarter of fiscal 2009 ended in March. Sun just posted a press release and some slides - sans quotes from president and chief executive officer Jonathan Schwartz or chairman Scott McNealy.

OK. So be it.

In the quarter, Sun's sales plunged by 20 per cent to $2.61bn, with product sales down 24.2 per cent to $1.52bn and services sales off 13.3 per cent to $1.1bn. Even with pretty big cuts on R&D spending and other costs related to running the business, Sun still had $46m in restructuring charges in the quarter and had a net loss of $201m after paying its taxes. In the year ago quarter, Sun had $3.27bn in sales and reported a smaller loss of $34m after $14m in restructuring charges.

The press release pointed out that Sun exited the quarter with $3bn in cash and marketable securities and had a cash flow from operations of $178m. Oracle is getting Sun on the cheap, when you see that cash hoard, even after assuming some debts. (The cash pile is bigger than many had expected, and it is a testament to Sun that it didn't burn down cash to try to save itself. Or, it's the fault of Sun's biggest shareholders who knew if Sun did that no one would ever buy it).

Another bright spot: Sun's deferred revenues rose by 5 per cent to $2.7bn in the quarter, with deferred product revenues rising by 25 per cent to $918m. However, deferred services revenues fell by 3 percent to $1.78bn.

Sun said in its financial presentation that support services revenue in fiscal Q3 fell by 11 per cent to $853m, while professional and educational services sales fell by 20 per cent to $242m.

Sun's sales in North America fell by 17 per cent to $1.05bn and sells in Europe (no doubt due in large part to currency effects) fell by 24 per cent to $836m. Even the hot emerging markets - the so-called BRIC Plus countries, you know who they are - had a decline for Sun, down 12 per cent to $418m. Sun's sales in the Asia/Pacific region fell the furthest, tumbling 28 per cent to $315m. This is no doubt thanks to slumping sales in Japan, where a poor economy meets extremely the extremely conservative nature of Japanese companies.

The real culprit for declining sales in the quarter, of course, were server deals that were tough enough to close before rumors of IBM's acquisition talks surfaced on March 18 with two and change weeks left in the quarter. That didn't help, and you can bet the final fiscal quarter will probably look a lot worse.

In Sun's financial presentation, it shows that "Galaxy" x64 server shipments fell by 14 per cent. That's the only down quarter in terms of shipments for Sun's x64 line in the data, which runs back to the third quarter of fiscal 2007. It looks like Sun kicked out about 28,000 x64 boxes. But Sun's overall server shipments fell by 26 per cent to what looks like 60,000 machines. That means, if you do the math, that Sparc server shipments plummeted by 34 percent to around 32,000 units. Yikes.

Since last summer, Sun has been giving out a detailed presentation that shows billings (not revenues, which are billed but no always booked in a given quarter) by product category to give investors some sense of what is selling and what is not. In the third fiscal quarter, billings for Sparc Enterprise servers (those based on Fujitsu's Sparc64 processors mostly with a smattering of upgrades for UltraSparc-IV+ machines) fell by 29 per cent to $504m.

That is just an unusually bad quarter, and it follows two other unusually bad quarters in fiscal 2009, which usually means that we have a new definition for "usual." Sales of Sun's Sparc T series (code-named Niagara) platforms did relatively better, with billings up 3 per cent to $309m. But billings for Niagara boxes have been growing enough to at least cushion the Sparc Enterprise crash a little better in the past two quarters. Not any more. Sun's Galaxy x64 server lineup also saw billings dive, down 22 per cent to $145m.

For Sun, systems means software as well as hardware, and on the software front, Sun reported $73m in Java billings (up 27 per cent), $80m in MySQL database billings (up 101 per cent), $34m in Solaris and related virtualization, and management tool billings (down 30 per cent). That's a total of $187m in billings (off 28 per cent). Total systems sales (revenues for hardware and software, not billings, after making adjustments) fell by 25.7 per cent to just under $1.1bn

And before IBM, which jilted Sun and thereby leaving Oracle there to snap it up for $5.6bn last week, starts throwing rocks around the glass house, let's remind Big Blue that its mainframe sales were off 19 percent in Q1 ended in March and System x sales were down 27 per cent. (Power Systems sales were up 2 percent, but storage was off 20 per cent in the same quarter for Big Blue.

Speaking of storage, Sun says that its billings for disks and storage arrays fell by 34 per cent to $233m in fiscal Q3, and its so-called Open Storage products rose by 63 per cent to $38m. Tape product billings rose by 3 per cent to $202m. Not exactly the business Sun was hoping for when it shelled out $4.1bn for StorageTek. Total storage sales (not billings, but revenues) fell by 19.8 per cent to $425m.

I betcha Oracle can't wait to see how Sun's fiscal 2009 year ends. ®

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