After his first month on the job, Sun Microsystems’ president and CEO Jonathan Schwartz had good news and bad news to announce last week.
The good news was a Gartner report that in the first quarter of the year Sun’s worldwide server revenue grew 7.6 per cent over the same period in 2005,and it placed it first in worldwide Unix server revenue.
The bad news was the decision to layoff of up to 5,000 people to get its debt under control.
But the cuts were not unexpected after Schwartz replaced Scott McNealey in April following another quarter of red ink.
Still, Forrester Research analyst Frank Gillett said it had to be done. “What they did was increase the amount of effort they were willing to put into making things better,” he said in an interview.
Non-core R&D will be cut, and the company will also look for savings by closing offices and consolidating the number of platforms it builds its servers and storage systems around from three into one.
“In my mind it’s not a dramatic change for them,” said Gillett, “but a doubling-down, a refocusing of what they’ve already been trying to do.
Still, Gillett suggested that Sun may have hit the bottom. “They’ve made the big bet now. They’ve put all the pieces in place in the last couple of years – a bunch of acquisitions, bought out new technologies.
“They’ve managed to stop the revenue and profit declines,” he noted, before adding, “but they haven’t really turned it around and got it going uphill again.”
Among the problems, Gillett added, is that a lack of detail means Sun partners still don’t have a clear idea how those cuts will affect them.
Take Zoreena Abas, president Albert White Technologies of Markham, Ont., a Sun VAR which also has offices in Ottawa and Mississauga, Ont. When interviewed yesterday she hadn’t heard of the layoffs.
A solutions provider that concentrates on the mid-market, she has watched as the company’s sales of Sun servers dropped three years ago; they have yet to recover. She estimates it now sells only a half a million dollars a year of Sun gear.
So Abas has welcomed Sun’s shift to AMD x86 servers, which she will help make it appeal to broader markets. Still, she acknowledged that it’s not easy to sell Sun to buyers used to purchasing Dell, or her other Intel vendors, HP and IBM.“It’s going to take a bit of time to convince customers this is a good alternative,” she said.
But Sun will have to do more than give good server, she also said. “I strongly believe Sun has to get a stronger channel program . . . to improve staff availability, to educate VARs on their go-to-market strategy, where they want to penetrate, what dollars they’re looking for. These are things you get from HP and IBM, but it doesn’t come from Sun.
“If they get a strong strategy they’ll do extremely well, because they’re products are good.”
Are the layoff’s Sun’s last stand? “Probably not,” says Gillett, who notes that Forrester stopped getting customer inquiries about Sun’s health, or advice on how to migrate from Solaris some six to nine months ago.
“However, there’s no easy alternative strategy to what they’re doing. There’s no company that can buy them out. If they can’t make a go of it and the shareholders decide they have to hit the reset button, you’d be talking about a dramatically smaller company or a company broken up into smaller parts.
“I don’t think anyone wants to swallow the whole thing.”