Are ponytails about to go out of vogue at Sun?
Despite impressions, I don’t actually enjoy thumping Sun and its current management. I’m not nearly mean spirited enough to take pleasure in such meaningless potshots. But Sun’s varied strategies (if I may misuse the word) have never made sense and never mapped well to long-term trends. And some Sun decisions — like changing their stock symbol to "java" - are just plain dumb.
These decisions show in Sun’s share price. The market votes with dollars and the dollars are flowing out from Sun, both in revenues and stock.
Sun announced more losses and at a free fall velocity that would make Newton rethink his calculations. Analysts had forecast a loss of around a penny a share and Sun in fact lost 25-35 times that much. It is the third quarter in which Sun earnings fell below analyst estimates, a rate of loss that made all analyst simultaneously suck air.
Sun suffers because they either don’t read market tea leafs well, or on the few occasions in which they do, they get overly excited about their discoveries. Sun’s few market innovations revolve around making proprietary monster multi-threading CPUs which in turn create monster monolithic servers. Trouble is the industry has and is showing a growing preference for clusters, clouds and virtualization … using standards. Sun zigged left as the market slowly and predictably drifted right.
Silicon Strategies Marketing was contacted by Sun earlier this year and we discussed their Sun Ray thin clients. The thin client concept has been around for ages but never gained traction. I advised Sun that over the long term thin clients were a losing market because standardization and competition constantly drove down desktop/laptop prices, open source was reducing the cost of applications, PC’s were commodities whereas Sun’s thin clients had proprietary elements, and that CIOs already had significant infrastructure management investments and thus a high switching cost. Sisyphus has an easier job than selling Sun Rays.
Sun lost their collective minds when they did discover growing markets and hot products. In relatively short order Sun overpaid for StorageTek and MySQL. Storage is indeed a hot market as we humans collectively continue to horde bits. But Sun dumped $4.1 billion on the acquisition, a price that exceeds Sun’s current quarterly revenues by about 25%. At the time Schwartz said Sun would be "a consolidator in the industry" which showed an utter incomprehension about the market and the dynamics of storage. Too many players, too many options for storage, capacity/price competition out of control. Zeus would have a tough time consolidating the storage business.
Then Sun acquired MySQL, the dominate force in free database software and the only company in modern times to make Larry Ellison rethink his career options. Sun dumped about another billion on MySQL, a company that makes free software — there’s a revenue enhancer for you. Since tangent income is all anyone can hope to make on Open Source, Sun was paying a billion dollars for name recognition and a comparatively tiny $50 million revenue stream. Assuming flat revenue growth (a state Sun wishes they could achieve) that is a 20 year ROI.
And then comes a recession. Personally I love recessions. The marketing strategy consulting business picks-up when the economy goes south. For Sun this the recession will a boat anchor tossed to a drowning man. Their hardware is not price competitive in an era of bargain hunters, and their famous software (Java and MySQL) are free, which will indirectly create more support-oriented costs for Sun as more of IT scavenges for cost cutting opportunities.
No, I don’t like hammering Sun and their management. But Lord they make it so easy on me.