Sun sets lofty operating margin goal for FY09
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Sun Microsystems, buoyed by its first profitable quarter in more than a year and a half, said Tuesday it has a goal of generating an operating margin of 10 percent by its 2009 fiscal year.
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(InfoWorld) - Oct. 18, 2000, might go unnoticed in the long history of Sun Microsystems, but it marked a critical moment in the history of a company that celebrates its 25th anniversary this week. On that day, an upbeat Scott McNealy spoke with analysts and unveiled his company's eye-popping first quarter earnings ($510 million on revenue of $5 billion -- an 88 percent increase over the same quarter in 1999). Looking forward, McNealy saw nothing but roses in Sun's future. Systems using the company's new UltraSPARC III processor had gone on sale in the preceding quarter, and McNealy predicted they'd be big hits in Sun's enterprise customer base, "offering unprecedented levels of uptime, reliability and quality."Â  It wasn't to be. Even as he talked up Sun's future that day, the company he helped found 18 years earlier was slipping, unnoticed, into a challenging new era that would shake it to its core, shake him from his perch as CEO, and challenge the very assumptions and strategies that had turned Sun into a Silicon Valley legend and Wall Street darling. [See also a Slideshow: "25 years of Sun" | PDF: "Timeline of Sun's achievements"] Over the next 12 months, as the air spilled out of a dotcom bubble that had fueled so much of Sun's growth, the company's stock would lose 80 percent of its value. Exactly one year later, McNealy would face the same analysts to announce first quarter revenues that were 43 percent lower than in 2000 and a net loss of $158 million.Â  And the news from Sun wouldn't improve for a long, long time as the company struggled in the years that followed to find a recipe for success while sticking doggedly to homegrown technologies like SPARC and its Solaris operating system. During one dark stretch, the company recorded 10 consecutive quarterly losses -- a blow that would fell many, lesser firms. Instead, Sun said last week that it is on track for a second consecutive profitable quarter after the company posted net income of $126 million on revenues of $3.566 billion for the quarter ending Dec. 31, 2006, ending a streak of five consecutive money-losing quarters. "They're in better shape recently than they were for much of last year," said Rob Enderle, principal analyst at Enderle Group. The company had been on a slow spiral downward for about five years but has begun to right the ship by focusing on its hardware line, open-sourcing Java and Solaris, and regaining ground in the all-important server market that it had lost to Dell, IBM, and HP more than five years ago, Enderle said. The return to profitability is sweet victory for a company that began as a brash competitor in the technical workstation space, survived the crucible of the dotcom collapse, and now is poised to regain its status as an innovative technology giant just as it celebrates its 25th anniversary this month. Founded in late-February 1982 by hardware designer Andreas Bechtolsheim along with entrepreneurs Scott McNealy and Vinod Khosla and software guru Bill Joy, Sun sharpened its teeth in the early days by besting bigger, more established firms like Apollo Computer (later part of HP) in the lucrative market for enterprise workstations. An engineer's engineering company to the core, Sun was an early backer of innovative technologies like NFS (Network File System), Java, which started as an internal project by early Sun employee James Gosling in 1991, and open source. That openness to new technologies, coupled with a scrappy corporate culture under hockey enthusiast CEO McNealy, helped Sun thrive throughout the 1990s as a foe of companies like IBM, Microsoft, and HP, even as the advent of personal computers running Intel processors and Microsoft's Windows operating system ate into the enterprise workstation market. The rise of Windows on Intel systems, or "Wintel," was a one-two punch for Sun in the enterprise. At marquee customers like GM, which has been using Sun systems for about 10 to 15 years, Sun workstations long ago gave way to Wintel PCs, said CTO Fred Killeen. "Historically, we would use Sun workstations, less now. The big part of [the switch to Wintel] is the end users now have a common platform that supports all their desktop applications as well as the CAD and CAE applications," Killeen said. Sun responded to the threat with characteristic pluck: disparaging Microsoft and looking to counter it with technologies like Java and OpenOffice. While those efforts did succeed in taking Microsoft down a notch, they did not do much for Sun, Enderle said. But as the 1990s boom revved up to a spectacular collapse at the turn of the millennium, the combative attitude that helped Sun face down bigger rivals blinded it to a changing business environment, allowing competitors to build leads in such areas as Web services standardization and push non-Sun technologies like Intel chips and the Windows OS.Â  Ironically, Sun's previous flag-waving for Solaris and SPARC while momentum mounted for Intel and Linux may have blinded Sun to the need for reform within its own product line and placed the company in the position of appearing as a proprietary systems vendor -- a cruel fate for a company that had always prided itself on being open and based on industry standards. Co-founder Andy Bechtolsheim said that the rise of Intel and Sun's not having an x86 system contributed to his decision to leave the company in 1995. "I was getting worried that the cost performance of those systems was catching up with the SPARC architecture," said Bechtolsheim, who has since returned to Sun as chief architect of industry standard products. But, historically, Sun has always shown a willingness to bend to industry whims, even if it means somebody else's work shares -- or takes -- the spotlight from Sun's own prized technologies. And that willingness to embrace change, backed by new CEO Jonathan Schwartz, who took over from McNealy in April 2006, has enabled Sun to pull up and out of its extended nosedive. These days, Sun is offering Intel systems, just like Bechtolsheim suggested in the 1990s, while it continues to back SPARC. "It's the mainstream of the company. In fact, it's growing again," he said. Sun is repositioning itself strategically as well. Under Schwartz's leadership, the company's focus has shifted from Sun's own proprietary Solaris Unix OS and SPARC RISC hardware to an open-source Solaris and the inclusion of Intel-powered computers on the Sun price list. Sun also offers systems powered by Intel-compatible AMD chips; Sun previously had sold some Intel systems prior to its agreement with AMD in 2003. Taken together with Sun's decision to open-source Java in November 2006 and the agreement, last month, to offer Intel systems, Sun is demonstrating a resolve and then resignation that have allowed the company to survive other existential challenges, such as the 1993 decision to accommodate the Motif user interface after remaining steadfast in support of its own Open Look graphical interface. "Open-source software has a compelling advantage because the potential customers know there's a difference in openness with open software [as opposed to] any kind of closed software," Bechtolsheim said. Berkeley Unix, used in the original Sun workstations, was essentially the industry's first open-source OS, he said. Besides, Bechtolsheim says, there is money to be made in open source through selling support and through sales of the company's hardware. Â At GM, Sun may not be a presence on the desktop, but it's still a significant presence in the data center, where Sun servers run back-end applications," said Killeen. Â Sun software ranging from Solaris to the Sun Java Enterprise System also populates GM. Sun, Killeen said, noting that Sun has been a very good partner for a long time. As Sun moves forward, it continues to face obstacles. Java, once revolutionary, now competes with a multitude of scripting languages that are considered the easier choice for Web application development. These include, ironically, the similarly named JavaScript language and PHP (Hypertext Preprocessor). And Sun is maintaining an independent streak as one of the few large vendors not participating in the Eclipse Foundation for open-source tooling and instead promotes its own rival NetBeans initiative.Â  While smaller than IBM and less influential than Microsoft, Sun, with its talented arsenal of technologists like Java founder James Gosling, remains a potent force. Just as the company once battled Apollo, Sun can be counted on as a prominent counterpoint to what its rivals are doing, even while Sun cooperates with its opponents when deemed practical.
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(InfoWorld) - Sun Microsystems Inc. Chief Executive Officer (CEO) and President Jonathan Schwartz made it clear Wednesday what kind of customers his company hopes to lure now that long-troubled Sun finally appears to be in the middle of an upswing. "There are two customers we see [in the market]," Schwartz said, speaking at a Sun product launch event in New York. "Customers that look at information technology as a competitive weapon, and those that look at information technology as a cost center. We're obsessed with and focused on the former." Calling New York the "epicenter for those kind of customers" because of the technology-savvy financial services firms and media companies that have headquarters there, Schwartz outlined some of the positives for his company since he assumed the CEO position a little over 100 days ago. While his first 100 days "honeymoon is over," according to Schwartz, Sun is just beginning to see the fruits of a comeback strategy it's been crafting since it took the dot.com bust on the chin in 2001. The company seems to be finally climbing -- albeit slowly -- out of its unprofitable rut, and has shown promising revenue growth over the last couple of quarters as it cut costs by shedding employees. Schwartz said the company even expects to achieve sustainable profitability by its fiscal fourth quarter, which ends June 30, 2007. Schwartz had little new to report about the company's overall strategy, although Sun Wednesday launched some storage and server products -- and one, called "Thumper," that is a hybrid of the two. In a message he's been trumpeting for years, the new CEO continued to stress Sun's commitment to offering a mix of hardware systems, software, storage and services, and helping customers combine those products in heterogeneous IT environments so Sun's products run seamlessly alongside competitive offerings. Schwartz pointed to the success of Sun's open-source version of its Solaris OS as proof that Sun is happy to play well with others if it means winning customers. He said since the company open sourced Solaris last year, nearly 70 percent of its implementations have been on competing hardware from IBM Corp., Dell Inc. and Hewlett-Packard Co., not Sun's own servers. Sun to date has distributed nearly 6 million licenses for OpenSolaris, Schwartz added. One analyst who attended Wednesday's event said it was not meant to be a new product-driven launch. Instead, said Jonathan Eunice, an analyst with Illuminata, the event was to show that Sun's investment in open source and new products over the past several years, including its early adoption of Advanced Micro Devices Inc.'s Opteron chips for its Galaxy server line, is finally beginning to pay off. Sun Wednesday sent a message that it's on the right path now and has something compelling to offer customers who shied away from it since it hit hard times, he said. "This is a drumbeat event," Eunice said. "This was not about the product pipeline, but about customer connections. [This is Sun saying], 'We continue to do the work, continue to get back with quality customers.'" Sun's announcement Wednesday that it has renewed its relationship with systems integrator Accenture Ltd., which is setting up an identity management practice on Sun's technology, is particularly important to reaching new customers or some it has lost since its downturn, Eunice said. "It's a very critical way for Sun to get new business and revenue," he said of the Accenture deal.
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After investing roughly $500 million and spending years of development time on its next-generation operating system, Sun Microsystems Inc. on Monday will announce an aggressive price for the software - free.
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(InfoWorld) - Sun Microsystems, buoyed by its first profitable quarter in more than a year and a half, said Tuesday it has a goal of generating an operating margin of 10 percent by its 2009 fiscal year. Sun executives set the goal, though they cautioned that a lot of things have to happen in order to reach it, during a conference with analysts Tuesday in San Francisco. Sun CEO Jonathan Schwartz said increased adoption of Sun's freely-distributed Solaris operating system,Â its recently announced partnership with Intel, and other strategic moves, will help it grow revenue. At the same time, said Sun CFO Michael Lehman, the company will continue to reduce its cost structure using a number of levers, though not employee layoffs. "Our cost structure is still too high," Lehman said, "but we do not intend to have a big layoff and just lower the numbers." The company is going to reduce general and administrative expenses and research and development spending as a percentage of revenue so that those expenses provide a better return, he said. For example, Sun is converting its own business software infrastructure to standardize on Oracle's 11i bundle of enterprise resource planning software, including general ledger, payroll, andÂ CRM software. The conversion is expected to cost more than $200 million, Lehman said, but it will save Sun the expense of having to manage 1,000 different types of software throughout its company. "We have put a stake in the ground, and we are on a journey," Lehman said. Sun posted net income of $126 million, or $0.03 per share, on $3.566 billion in revenue, in its fiscal 2007 second quarter ended Dec. 31, 2006. It was Sun's first profitable quarter after five successive quarterly losses. Sun recorded an operating margin of 2.9 percent in the second quarter and forecasts a 4 percent operating margin in its fourth quarter. On the revenue side, Schwartz said the company's decision to give away its Solaris operating system and open source its Java software create opportunities for Sun to sell hardware and services to those users. Sun's recently announced deal with Intel to install Intel processors in its servers, while Intel markets Solaris, will also create new sales opportunities. "We are now fully outfitted to pursue 100 percent of the market. There is no opportunity that we are precluded from bidding on. There is no customer that we cannot serve," Schwartz said. Sun's turnaround strategy is finally showing up in its financials, said Nathan Brookwood, an industry analyst with Insight 64, a research firm. "You had to take it on faith a year ago." Sun previously only sold servers and workstations running its Sparc processors. Now, because it also uses Intel and AMD processors, it can appeal to broader markets, said Brookwood. "Three years ago if you wanted to buy hardware from Sun, you had to sign up for the Sparc religion. Some people believe in other religions, and they didn't want to have to do a religious conversion to buy from Sun," he said. Sun's operating margin goals seem "conservative" to Sun financial analyst Andrew Neff of Bear Stearns & Co. In a research note to investors, Neff, who also attended the conference, said "Sun has more work to do on costs, [but] we believe its outlook can further improve."
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DECEMBER 06, 2004  - The progress report that Microsoft Corp. and Sun Microsystems Inc. issued last week on their joint initiatives left some IT managers and analysts wondering when or if the
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SunTrust Banks Inc. STI.N, the No. 7  U.S. bank, on Monday said it expects to restate first- and  second-quarter profit higher, changing how it accounts for loan  losses. It also said it put some finance executives on paid  administrative leave.
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InfoWorld - Sun described on Wednesday a growth strategy that depends in large part on giving away software in the hope that customers will like it enough to sign up for support contracts and perhaps buy Sun hardware on which to run it.
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Network computer maker Sun Microsystems Inc. on Thursday posted a narrower quarterly loss as revenue rose year over year for the second consecutive quarter after three years of declines, sending shares slightly higher.
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The companyâs strong quarterly results and optimistic outlook suggests that a weakening economy will not slow it down.
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Taking an intentionally cautious tone, Microsoft and Sun executives said Wednesday that the first eight months of their 10-year partnership have yielded small, but significant progress.
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Sun Microsystems Inc. SUNW.O on  Sunday introduced the long-awaited next version of its  operating system, Solaris 10, which the network computer maker  is betting on to help bring itself back to sustained  profitability.
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Struggling Sun Microsystems will try to show next month that it still has a lot of friends in the financial community. On Sept. 21, the Mountain View, Calif.
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Business software maker Oracle   Corp. ORCL.O posted a profit on Tuesday that topped Wall   Street estimates and forecast solid growth this quarter, and   its shares rose 9 percent to their highest level in four years.
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Sun Microsystems Inc. today is expected to unveil the much-awaited âfreeâ version of its Operating System, Solaris 10, which the company is betting on to help neutralize the open-source threat and increase profitability.
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Signs suggest solar power might be reaching a tipping point.
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Network computer maker Sun Microsystems Inc. (SUNW.O: Quote, Profile, Research) on Thursday posted a narrower quarterly loss as revenue rose year over year for the