Quarterly Results Cast Shadow over Sun

Despite Sun’s poor economic showing recently, the atmosphere at last week’s JavaOne conference was surprisingly festive

Since Jonathan Schwartz first took the helm at Sun in 2004 (as President and COO -- he ascended to the CEO spot in 2005), analysts and industry watchers have even ascribed a new jauntiness to Sun’s step.

The company stride seems to have broken. Sun’s latest quarterly report included a $34 million loss, disclosed plans to lay off as many as 2,500 more employees, and hinted that -- with respect to the rest of its 2008 fiscal year -- happy days won’t be here again soon.

How could Sun -- which posted a $67 million profit during the year-ago quarter, and which (during Schwartz’s Q2 earnings call with analysts) went so far as to reassure Wall Street that it would probably remain shipshape, even with growing economic uncertainty -- have fallen so flat?

Chalk it up precisely to uncertainty -- both at Sun and among U.S. technology buyers. "There appears to be a number of customers whose spending plans were uncertain," conceded Sun CFO Mike Lehman during a conference call with analysts.

On the other hand, analysts say, what’s ailing Sun isn’t anything terminal.

Industry veteran Jonathan Eunice, a senior IT advisor with Illuminata, says it’s bad. Very bad.

“There’s no question, a loss is a disaster, especially when coupled with a retreat from optimism about near-term prospects,” he comments, adding that Sun’s performance is “Bad with a capital ‘B’ if only for the change in tone, topic, and attitudes of everyone involved.”

According to Eunice, this means that Sun’s most important assets -- its people -- spend more time worrying about job security than job performance. In spite of what Schwartz himself has accomplished during his tenure (which saw Sun pull the trigger on at least two mega-acquisitions -- StorageTek and MySQL -- as well as pursue several cutting-edge initiatives), it has investor’s second-guessing the Sun chief’s job performance as well as the abilities of other executives.

The loss also doesn’t do much to reassure current and potential customers. “While customers and partners don’t usually take just one small quarterly loss that hard, they have to wonder if this will become a pattern,” Eunice points out.

“Prospects spend time worrying about the vendor, rather than the goods or services offered. Competitors make hay of Sun’s misfortune, for however long it lasts, et cetera. You’ve seen this movie before, and it’s violent, and if we’re teetering on -- or just over -- the brink of economic recession, times are going to get harder for everyone.”

Nevertheless, Eunice urges, the game is far from over. For starters, it’s rough out there: not everyone is doing as badly as Sun, of course -- but few folks are touting a completely rosy outlook. More importantly, Sun’s fundamentals -- which include a surprisingly scrappy x86 business -- are solid.

Sun’s overseas sales -- especially in India and China, where revenues grew by 30 and 10 percent, respectively -- are downright bullish. “For the most part, we haven’t seen a similar slowdown or anything close to what we saw in the U.S.,” Schwartz told investors during this month’s conference call.

There’s also a sense that the news cycle tends to amplify setbacks such as Sun’s. “[T]he rhetoric and the tone will make this setback seem a lot worse and a lot more systemic than it is. In fact, the overall project has steadily improved. Competitors may enjoy their gloating, but they’d better not forget that Sun has rushed up the x86 server sales charts in a few short years, from a very disadvantaged start,” he points out. “With the Chip Multi-Threading … line, SPARC is back. Sun’s relevant again in high performance computing.”

In other words, Eunice argues, Schwartz and Sun have reversed their slide.

What befell Sun in Q3 -- and whatever happens in the coming quarters -- might be bleak, but there is light at the end of the tunnel. “[I]n the Web, in the OS/platform wars, in development, and in other areas where a few years ago it was slip, slip, sliding down the slope, … the work is moving steadily along.”

Sun does have its tender spots (especially with respect to its storage division, which hemorrhaged cash and customers during the most recent quarter), he concedes. “[W]hile Sun remains a rebuilding work in progress … [its] returns to relevance on multiple fronts have come from a much darker, much more dismal place, today’s quasi-recession notwithstanding.”

Bullish at JavaOne

Sun still seems to be firing on all cylinders. At last week’s JavaOne conference, for example, executives (including software chief Rich Green) touted Sun’s own take on a rich Internet application environment, a la Adobe Systems’ Adobe Integrated Runtime (AIR) and Microsoft Corp.’s Silverlight: JavaFX.

Green and other executives concede, however, that they’re late to the party -- AIR and Silverlight are already old news, and JavaFX isn’t yet shipping -- but Sun has something that neither Adobe (in spite of the enormous popularity of Flash) nor Microsoft has: a Java backbone.

That’s where JavaFX comes into the picture. After all, Java can be onerously difficult to pick up -- for non-programmers, at least -- so JavaFX, which Sun describes as a sort of Java-like scripting language, is designed to make it more accessible.

“[A] lot of people [say] that [they] can do anything with Java,” Green told conference attendees. “It just takes such a long time [because] it requires professional coding techniques and a very deep understanding.”

In other words, said Schwartz, JavaFX is designed for an entirely different kind of user: the creative professional. “JavaFX Script is going to bring Java to creative professionals,” he asserted. “[Java is] no longer the domain of object-oriented programmers.”

One such creative professional is a decidedly idiosyncratic one: iconic rocker Neil Young, who helped liven up Sun’s JavaOne fete. Young gave a JavaOne keynote in which he sang the praises of Java.

As it happens, Young is using Java to power the multimedia component of his upcoming Archives releases, which chronicle his career over more than 40 years.

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