Big Sparc crunches Sun's Q2

Server and operating system maker Sun Microsystems has reported financial results for its fiscal second quarter, and the news was as bad as Wall Street expected.

Sun's sales fell 10.9 per cent to $3.22bn in the quarter, and the company booked a loss of $209m. Sun was pushed to the loss by a $222m restructuring charge relating to the layoffs it announced in November. Between 5,000 and 6,000 employees are departing the company's 33,400-strong workforce.

Sun's product sales, which are mostly for servers and storage, came to $1.94bn, down 13.8 per cent, while services revenues fell to $1.28bn, down by 6.2 per cent.

The usual breakdown in products that Sun spews over the Web to reporters wasn't available due to, well, a technical problem. Sun eventually posted a Web 0.5-style phone number on its investor relations site to get us plebes on the call. I got on just as Jonathan Schwartz, Sun's president and chief executive officer, started talking about Sun's systems business. (About 10 minutes into the call, if it started on time).

Sun started by giving a financial breakdown by product family, but this breakdown is based on billings during a quarter versus revenue booked. So the numbers, while an improvement over the skinny data Sun used to give out, do not give a precise picture of the revenue during the quarter.

Billings fell 32 per cent with Sun's high-end and midrange Sparc Enterprise servers - which are comprised of some older UltraSparc-IV kit made by Sun and mostly rebranded gear made by Sparc partner Fujitsu. For all of IBM's talk last week about how virtualized high-end Power and mainframe systems were sucking the life out of its x64 business, Sun's customers didn't seem to get the memo. (Sun is more heavily focused in financial services, telco, and government than is IBM, so that might have something to do with it). Sun's "Niagara" entry and midrange multithreaded Sparc T machines continue to be a bright spot for the company, with billings up 31 per cent to $369m in Q2.

Schwartz said that the Niagara family of machines is now at a $1.4bn run rate. What is probably happening in Sun's Sparc business - only Sun knows this for sure, and it sure didn't say so - is that many of Sun's customers who might have bought midrange Sparc Enterprise machines have downshifted to bigger (and less expensive) Niagara boxes. They all run the same Solaris, after all.

Schwartz said that the high-end business tends to be lumpy, reminding Wall Streeters that high-end revenues were up 16 per cent two years ago and up 23 per cent in fiscal Q1 2008. In fiscal 2007 and 2008, billings for big Sparc iron were essentially flat at $3.4bn. To meet that level of billings in fiscal 2009, Sun has two quarters (and one of them half done) to bill nearly $2.2bn in big Sparc boxes.

Sun hasn't had two quarters in a row like that for big iron in a long, long time. So a decline for Sparc Enterprise machines this fiscal year seems likely, given the state of the global economy. And Niagara machines will have a tough time filling in the gap.