Sun's deepening gloom

Sun Microsystems watchers have been writing the company's obituary for the past few years, as the Wintel juggernaut becomes steadier in its course.

Sun Microsystems watchers have been writing the company’s obituary for the past few years, as the Wintel juggernaut becomes steadier in its course. They’ll have gained more reason for head shaking with its latest financial utterance – what had been a $US12 million in net income in the three months to the end of June is now recorded as a $US1 billion loss, after a tax adjustment.

The man who gets to talk about this painful subject on Sun’s behalf is a New Zealander, Andy Lark, who demonstrated he can spin just as cleverly as any US master of the art.

"Our Q1 was particularly difficult due to market and competitive dynamics," he said. "That caused us to reassess our deferred tax asset value."

Those market and competitive dynamics have hit Sun particularly hard since the US IT market melted down. So much so that it has watched its revenue fall – by 8.5% last year (to a still impressive-sounding $US11.43 billion) – and had to take the axe to its payroll on three recent occasions (sacrificing 1000 more staff last month on top of 8300 laid off earlier).

Financial losses and layoffs in the IT industry have been par for the course since the dot-com disaster, but Sun’s misfortunes seem to really captivate the pessimists. Its demise, or recreation into some unrecognisable new form, has been a talking point for a year or more. Apple has been touted as one merger partner, as have, at various times, Oracle and Dell. (Read this for some informed speculation).

Dell is a big part of Sun’s problem. It and Linux. In combination, they represent cheap hardware and cheap software, two things which Sun has not sold.

Sun knows the problem it faces, but boss Scott McNealy, whose nemesis is Bill Gates (McNealy likes to describe Windows as a fur ball), has never been one to admit weakness. Instead the company presents a picture of confusion. After saying it wouldn’t continue selling a version of Solaris, its Unix variant, on Intel processors, it is now doing so again. And after distributing its own Linux variant for a while, it’s given that up.

Meantime, it insists it’s still spending billions on processor (SPARC) and software R&D, to extend the life of the products that used to make healthy margins.

But cheap software looks like it will play a key part in the company’s future. Last month it announced “shockingly low” (in the words of Gartner) pricing for server software -- $US100 per employee; and this month it will release Mad Hatter, a combination of Linux operating system and apps to rival Microsoft Windows and Office, which is tipped to sell for up to $US100 per desktop per year.

Those moves will guarantee the company plenty of attention, if not the revenue to sustain it at the size it once was.

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Doesburg is Computerworld’s editor. Send letters for publication to Computerworld Letters.

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