The Channel logo

News

By | Timothy Prickett Morgan 31st August 2009 13:02

Sun sales plummet 30.6% in Q4

What? You didn't think we'd notice?

If the impending acquisition of Sun Microsystems by Oracle was meant to be reassuring to Sun's customers and to stabilize its sales, that sure didn't work. Not with revenues down 30.6 per cent to $2.62bn and the company posting a $147m net loss in the fiscal fourth quarter ended in June.

After the market closed on Friday, Sun snuck out its fourth quarter and year-end fiscal 2009 numbers. No conference call. No press release with a statement. Just some tabular data and - if you look for it online at the SEC's Edgar system - a presentation management would have otherwise discussed if Oracle hadn't muzzled the company as it awaits approval from the European Commission's antitrust authorities to close the $7.4bn Sun deal (which worked out to $5.6bn net of Sun's cash and debts when the deal was announced in April).

The Q4 numbers were as bad as Sun had warned Wall Street they would be two days ahead of the vote by Sun's shareholders back in mid-July to approve the deal or not. But losses for the fourth quarter were not as bad as might have been expected because Sun has slammed on the sales and marketing brakes bigtime, cutting deeper than it had already done in the third quarter.

Sun's top brass and its shareholders don't have a better option than to throw the company at the tender mercies of Larry Ellison into the gaping maw of Oracle, and thus they approved the takeover on July 16, but with only 62 per cent of the shares outstanding voting for the deal. The irony, of course, is that the Oracle deal - and the huge uncertainty that surrounds it in terms of current and future hardware product lines - is what has hammered Sun's sales in the two most recent quarters, pushing Sun into the red.

If Sun hadn't started shopping itself around last November, had cut costs a little deeper than it might have otherwise wanted to, and stuck to its server and operating system knitting, Sun might be at break-even or even marginally profitable. All by its lonesome.

But that is not the way that president and chief executive officer, Jonathan Schwartz, played it. And Sun's employees, shareholders, and customers will suffer until Oracle gets regulatory approval for the deal from the Europeans - and very likely after that as Oracle sorts out the hardware and software lines and makes the cuts that Sun's own managers were unwilling to do to make Sun profitable. The annoying thing is that Sun sure did show a certain flair for cost cutting in Q4.

If Sun had spent as it did in fiscal Q3, its losses would have ranged from $179m to $253m on sales ranging between $2.58bn to $2.68bn, the guidance it gave back on July 14. But even with $64m in restructuring charges and $15m in impairment of goodwill, Sun only lost $147m in the fourth quarter.

Where was this cost cutting when Sun needed it one, two, or three years ago? Sun always hoped it could grow its way back to profits, that's where.

The June quarter is traditionally Sun's best, given that it is the company's year end and sales people are motivated to close strong to get their bonuses. But Sun's hardware and software sales continue to slide in Q4, even lower than levels in the third quarter. Only by a minor bump up sequentially in services, to $1.14bn, was Sun able to squeak out sequential growth. That said, computer products sales fell by 37.9 per cent year-on-year to $1.48bn, and services revenues dropped by 18 per cent to $1.14bn.

For the full fiscal 2009 year, Sun's server, storage, and software sales fell by 22.2 per cent to $6.7bn and services sales (which includes the very lucrative support contracts for the Solaris operating system) declined by 9.8 per cent to $4.75bn.

Bill of Sales

For the past few quarters, Sun has been giving out detailed billings (not booked revenue stats) for its various hardware, software, and services product lines, and in hindsight, these were probably aimed as much at selling the company as they were in selling Wall Street on the idea that Sun had some growth businesses that underpinned any hopes for optimism about the company's stock and its future as an IT supplier. The detailed billings numbers show how the double-whammy of the economic meltdown and the Oracle acquisition hammered down its key products.

Sun's SEC filing shows that billings for the Sparc Enterprise line of servers using Fujitsu's quad-core Sparc64-VII processors saw a stunning 54 per cent decline in the fourth quarter of fiscal 2009, to $435m. This is a much steeper decline than in the prior three quarters and marked the worst - not the best - quarter of the year. Billings for Sun's "Niagara" family of Sparc T series servers were up a smidgen, to $355m, in the quarter, but the "Galaxy" x64 server line saw a 9 per cent decrease in billings, to $178m.

For the year, the Sparc Enterprise platforms declined by 36 per cent, to $2.18bn in billings, while the Niagara platforms grew by 22 per cent, to $1.37bn in billings. The Galaxy x64 line is a big disappointment in fiscal 2009, with billings down 5 per cent to $675m. But to be fair, Sun probably gained market share because other x64 server makers had much steeper revenue declines since the meltdown started a year ago.

Other systems, which presumably means older iron using Sun's own UltraSparc chips and mostly processor and memory upgrades for installed systems, saw a 66 per cent decline in billings for the year, to $434m. Sun's combined systems billings for Q4 came to just over $1bn, down 42 per cent, and for the year came to $4.66bn, down 29 per cent.

In terms of shipments, Sun says that overall server shipments across all architectures declined by 34 per cent (to what I reckon is about 64,000 units) and that x64 server shipments fell by 13 per cent (to what I estimate is about 28,700 units). When you do the math, that means Sparc-based server shipments fell by 45 per cent to around 35,300, and that is presumably with a big bump in Niagara server sales. I think considering the slide in Sparc Enterprise sales, Oracle is going to work out some sort of revamped hardware deal with Fujitsu and stick to the Niagara products for all but the biggest Sparc shops.

And it would not be at all surprising to see Oracle shut down the or spin out the Galaxy x64 server business entirely, or do an X64 server rebadging deal with Hewlett-Packard or Fujitsu to just get rid of that engineering cost.

Sun's software billings in Q4 relating to Java and MySQL were bright spots in the financials, so you can see why Oracle wants to get control of these. But both are still, relatively speaking, small potatoes. Java billings in Q4 came to $108m, up 22 per cent, and MySQL database sales hit 100m, up 10 per cent. Solaris licenses, plus management and virtualization software sales, declined by 29 per cent in the fourth quarter, to 45m. For the fiscal 2009 year, Java billings came to $281m, up 28 per cent, MySQL billings came to $313m, up 51 per cent, and Solaris and add-on license billings hit $159m, down 26 per cent.

Sun's storage businesses are taking it on the chin just as hard as its server lineup. In Q4, disk and storage array billings were down 48 per cent, to $242m. Even with 57 per cent growth in billings for the so-called open storage products (funky servers with lots of disks running Solaris and ZFS), to $51m in the quarter, the storage hole did not even come close to being filled in. Billings for tape products declined by 47 per cent, to $149m, in Q4. Billings for open storage products rose by 59 per cent for the fiscal year, to $145m, but did not grow

The one place where the declines were not as pronounced in Sun's Q4 and fiscal 2009 is support for product support, which includes hardware and Solaris tech support. In Q4, these support contracts represented $886m in billings, down 15 per cent, and hit $3.65bn in billings for the fiscal year, down only 9 per cent. Sun's professional services biz had $257m in billings in Q4, down 27 per cent, and had $1.1bn in billings for the year, down 11 per cent.

Looking ahead to the first quarter of fiscal 2010, you can expect even worse numbers as Sun's 47,000 enterprise customers sit tight and wait to see what Oracle is - and is not - going to do with Sun's product lines.

Sun exited the quarter with $1.87bn in cash and equivalents, $981m in short-term investments, and $695m in long-term debts, or $2.16bn in cashish. By paying down some debts, that makes the net cost of the Oracle acquisition now only $5.2bn. Another crap quarter like this one and Oracle's net cost could drop under $5bn. ®

comment icon Read 24 comments on this article alert Send corrections

Opinion

Killer whale

Chris Mellor

Firm cites 'low demand' plus 'abusers'

Tim Worstall

Or why the reversal of globalisation ain't gonna 'appen
The full Spanglish breakfast: mealy pudding, bacon, black pudding, sausages, fried egg, toast
Blood image

Trevor Pott

Can the storage giant overcome a lack of necessary leadership?

Features

No, silly... he was the fall guy for years of Finnish folly
Fraud image
Frodo and the Ring
Microsoft's strategy is to make Store apps popular. Good luck with that