Is Sun Setting?

By Kurt Cagle
July 14, 2008 | Comments: 5

The global slowdown is beginning to take its toll on more exposed hardware and consulting companies. On Friday, July 10, Sun began sending out pink slips to more than 1000 employees, primarily in the marketing and sales areas as part of a broader move to reduce costs in the face of a third quarter loss of $34 million dollars announced in May. An additional 2500 job cuts are rumored to be in the works as well for the beleaguered server company.

In an perhaps not unrelated note, analyst Ashlee Vance with the Register speculates that Sun may be a takeover candidate for Japanese consulting giant Fujitsu. In the last decade Sun has fallen from a $50B+ company to its current level of $7B, which drops it out of the category of being a large-cap stock and has some serious implications for its listings on the Dow indexes.

Fujitsu, on the other hand, has long been a strong Sun customer, and at a market share of $16B, it's solid enough that a merger of the two companies would be effective both on Wall Street and in the IT shops, especially as Sun's presence in Asia is fairly weak while Fujitsu's North American operations have also been anemic.

Unfortunately for the company, unless such a takeover occurs, Sun's going to be facing increasing headwinds in what is turning into a fairly severe global economic storm. IT budgets at larger companies and organizations are beginning to be pared back, though not as dramatically as during the 2001-2004 tech bust.

In this light its acquisition of mySQL late last year begins to look more questionable - while it is likely that mySQL usage will likely continue to climb due to the same economic factors, the question of whether the consulting arm of mySQL AB (which is in essence the value of the purchase) will manage to yield enough revenues to even begin offsetting the $1B cost of the open source database company.

Sun has long been somewhat of an iconoclastic company - hiring many of the brightest and most well-known minds in the industry, including a number of people who have been critical in the open source and open standards movement. In recent years the company has been targeting the open source community with its products, opening up Solaris, Java and Star Office (Open Office) in the process.

However, while Sun has been one of the industry leaders in this space, its ability to monetize its products and services in this sector hasn't been as strong, either from a shift to consulting services or through hardware sales; as software commoditization and hardware virtualization continue to remake the IT sector, Sun may indeed be slipping below the horizon.

Kurt Cagle is online editor for O'Reilly News and an author and information architect living in Victoria, British Columbia, where we've finally managed to exchange parkas for swimsuits.


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5 Comments

Well, except Sun *has* been able to monetize its services in server sales, and the whole point of these layoffs -- now very much old news -- was that US server sales are what are off. In fact, if anything Sun's new direction is important in two dimensions -- one, strengthening its offerings for international sales, keeping in mind many countries outside the US care more deeply about OSS solutions, and two, diversifying some revenue sources elsewhere. I think their services model for things like storage look really compelling. I agree that purchase price for MySQL makes the balance sheet trickier, but this is a tough marketplace this year in general.

I'm not saying you're incorrect about the challenges here ... just that you could make this same general argument for any number of companies. It's the nature of the challenges a lot of companies face. I think Sun is better positioned in this free software/ sell iron and services model than a lot of companies.

Oh, and I'd rather be them than GM or United Airlines or JPMorgan Chase right about now. ;)

Peter,

I would have to admit that I agree with you - I think Sun is better positioned than GM, UAL or Chase right now by a long shot, but I also think that's true of tech in general. To me Sun's layoffs are more of the canary in the coal mine - that the storm that is buffeting significant sections of the US (and global) economy right now is beginning to make itself felt in the IT sector as well, though nowhere near the same degree (fortunately).

-- Kurt

Kurt, I continue to believe that the Board must have known what it was getting into when it gave the MySQL acquisition the green light. If they had not acquired MySQL they would've shown a profit, I think that the MySQL acquisition provides adequate cover for Schwartz to make the necessary cuts in the workforce to reduce operating costs. McNealy is Chairman, you can't think that they didn't know what they were getting into. They need to make serious cuts in painful places.

What scares me about Sun is that they are at the center of Java, yet they don't seem to be making rational decisions about the direction and management of Java.

>>> "Is Sun Setting?"

is Onjava.com setting? Two posts since "July 14, 2008".

Yep. A cyber ghost-town. Sad to see,

but as for Sun... didn't I call it?

Through this arc of sundown my own company has remained well equipped, low maintenance, and consistently profitable. I bet my worth on open source, and they bet against. I would give a lot of the credit to Jonathan Schwartz for the downfall; he presents an ideal exemplar for the concept of hubris.

Thanks for the laughter. Wish I could've known you.

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