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Why Did Sun's Revenue Growth Hit a Brick Wall? - View from the Hill

On April 19, 2001 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results for the third quarter of fiscal year 2001, which ended April 1, 2001. Revenues for the third quarter were $4.095 billion, up 2 percent compared with the third quarter of fiscal 2000.

That's one of the worst revenue growth results that Sun has reported for years. I think there's more to this than just the recession. Sun is losing focus.

Zsolt Kerekes - Publisher
Zsolt Kerekes has been editor and publisher of the SPARC Product Directory since 1992. Before that, he managed a number of Sun reseller and oem organizations, and before Sun was born, in the early 1980's he founded a venture capital backed startup in the factory automation market. Zsolt is also editor of STORAGEsearch.
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A Reader Comments

As a Java developer, the applications I have been developing and deploying over the last 6 months have resulted in the purchase of 3 Sun servers.

Without Java, I would probably be developing apps that would not run on Sun servers, and even if they did, I doubt Sun would top the list of choices. In fact, they would probably be Intel-based servers.

Java (and many of the other 'initiatives' Sun proposes) make their servers quite useful. As you say yourself in the article, there is more going on than Oracle and IPlanet.

Just my two cents :-)

Matt Collins
April 20, 2001:- This is an occasional column by Zsolt Kerekes publisher of the SPARC Product Directory.
See also:- Articles about SPARC, SPARC News, STORAGE News, Articles about STORAGE

Maybe we should have seen it coming. Sun's 2% revenue growth compared to the same quarter a year ago is because it has lost its easiest customers. A year ago, in the first quarter of 2000, you could be forgiven for believing that the first things that most newly enriched dot-coms did with their investor's money were

  • book their TV advertising
  • order a bunch of Sun servers to show to visitors. Because they were working on Internet time, it was better to hit the ground running. They could figure out the direction later.
But let's do a reality check here...

Despite the dot-bombs and the recession, the results from many other companies which I track in the enterprise computing market suggest that big iron is still selling like hot cakes, and I have no reason to doubt that Sun's core business:- enterprise class servers will continue to grow at a fast rate, as conventional brick and mortar style companies crank up their business efficiency and install CRM (Customer Relationship Management) which eat up MIPS faster than any other business applications.

So what's going wrong in Sun?

My guess is that Sun is now involved in far too many product areas where other companies do things better. For example:-
  • in storage - they should give up the not invented here syndrome and resell more products from other best of breed companies. This is not new advice. I said this in an article last year. Since then, the gap between Sun and the storage leaders has widened.
  • on the desktop - just give up the low end desktop workstation market. The desktop PC market sucks anyway (to misquote IBM's Louis V. Gerstner, Jr., IBM chairman and chief executive officer, who actually said recently "The desktop segment is hurting -- and it is not just a cyclical issue. This is a mature business, and it no longer drives the economics of the IT industry." Sun has been losing market share on the desktop for years, so why waste good marketing resources in a deadbeat market?
  • everything that's not directly related to SPARC servers should be regarded as suspect, and draining resource away from the best part of the business. That includes Java and the countless other initiatives which Sun announces, every couple of days it seems, in software, wireless etc etc.
  • stop trying to kill the reseller channel. Unless Sun decides to become a super reseller (like Compaq) the reality is that most users still need a lot of stuff which Sun doesn't make, such as routers, switches, and best of breed storage. Also most people in the real world need more than Oracle and iPlanet stuff, so resellers are needed to install and integrate applications. During the last year, watching Sun's many activities aimed at bypassing the reseller channel, which in fact was partly responsible for their original success, has seemed like watching someone unravelling their knitting.
Long term I think there's a very sound business in Sun, which has excellent growth potential, if you cut out the dead wood, and non-core fringes.Recession or no recession.

But if they don't sharpen up their focus, they will lose their magic touch, and results like those we've just seen may become more common.

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