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Sun files $120m loss on the hush

Only $120m. Well done

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Sparc tumbles

Sun said that its Sparc Enterprise servers accounted for $343m in billings in the first quarter of fiscal 2010, down a whopping 40 per cent. This is a far more dramatic decline in high-end server sales than either IBM or Hewlett-Packard are seeing - worse even than mainframes, and by a wide margin at that. (IBM's mainframe revenues were down 26 per cent in the same three-month period).

Sun's "Niagara" family of so-called CMT servers, which use the Sparc T series of multicore and multithreaded processors, slipped 20 per cent to $272m, and x64-based "Galaxy" servers had a 10 per cent decline in billings to $159m in the quartr. Other systems accounted for $50m in billings, and the grand total of $824m in system billings was off 34 per cent compared to Q1 of fiscal 2009.

Sun said that its overall server shipments were down 41 per cent in the quarter, to what looks like around 48,000 units or so in Sun's presentation. The company's x64 servers had a 30 per cent decline, to what looks like around 24,000 units. To make these rough numbers work out, that has to mean that Sun's Sparc-based server shipments had to fall by 49 per cent, from 47,000 units a year ago to 24,000 units in this quarter.

That is truly awful, and the cowardly way that Sun killed off the Rock chips and has yet to explain its Sparc product roadmap to customers in the wake of that death is no doubt undermining confidence in Sparc shops. So is the rather unimpressive Sparc roadmap that Sun shared with selected customers back in June. Sun's hardware business needs a fire lit under it - and soon.

On the software front, Sun's Solaris licensing (as distinct from Solaris support contracts and applying only top products that have not been open sourced) and management and virtualization tools together accounted for a mere $24m in billings, down 38 per cent. MySQL database software accounted for $53m in billings, up 2 per cent, and Java licensing accounted for $54m, up 57 per cent. (I would bet this Java licensing bump came from Oracle, but who knows?) All told, software billings were up 6 per cent, to $131m. When you take out $93m in adjustments for inter-group sales and for billings that did not book in the quarter, you get $862m in systems revenues.

Sun has been breaking out billings for its storage products separately in this presentation, and said that disk and storage arrays saw a 37 per cent decline, to $196m, in the first quarter. The much-ballyhooed open storage products accounted for $35m in billings, up 40 per cent, but much less than the $51m billings in the fourth quarter of the prior fiscal year.

Open storage has to do a lot better, just like CMT and x64 servers have to do, if Sun is to survive either as part of Oracle or as a standalone company. Tape product billings fell 25 per cent, to $140m, and other storage accounted for a mere $4m in billings. After $50m in adjustments, storage accounted for $325m in revenues during the quarter.

On the services front, hardware and software support (including support for the freely distributed Solaris 10 Unix), accounted for $852m in revenues, down 12 per cent, while professional and educational services made up $204m of sales in the quarter, down 22 per cent.

Sun exited the quarter with stronger gross margins, $1.84bn in its product and services backlog, and $2.8bn in deferred revenues. Product deferred revenues were up 15 per cent in the quarter, while services deferred revenues were down 5 per cent. The company had a mere $589m in long-term debt. In other words, this is a business that can be stabilized at around $12bn a year in sales, and possibly profitably.

It is hard to imagine how on earth Oracle will be able to extract $1.5bn in profits out of Sun in the first 12 months after the deal closes, and then $2bn a year after that. It is a rare, rare IT hardware vendor that can bring something on the order of 17 per cent of revenue to the bottom line, and to do so required the kind of legacy lock in that IBM has with mainframes and AS/400s. Perhaps Oracle sees the same kind of growth potential Sun always did?

On a geographical basis, Sun said that its sales in North America fell 19 per cent, to $986.9m, and sales in Europe were slammed down 29 per cent, to $672.9m. Emerging markets were down even further, falling 33 per cent, to $314m, and Asia/Pacific had a 23 per cent decline, to $269.1m. ®

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