Storage Shades Sun's Q4

Weakness in US spending and storage OEM issues blight vendor's quarterly results

July 31, 2007

4 Min Read
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Sun reported its third consecutive quarter of profitability with its fourth quarter results last night, but storage continues to be a problem for the vendor. (See Sun Exceeds Profit Target, Sun Slips on Storage, Sun Returns to Profitability, and Storage Slows Down Sun.)

Sun's fourth quarter revenues were $3.85 billion, up from $3.83 billion in the same period last year, and just above analyst estimates of $3.84 billion. For the full year, the company reported revenues of $13.873 billion, a 6 percent increase on the previous year, and in line with analyst estimates.

Sun reported fourth quarter net income of $329 million, or 9 cents per share, compared to a loss of $301 and 9 cents per share in the same quarter last year. For the full year, Sun reported net income of $473 million, or 13 cents per share, compared to a net loss of $864 million, or 25 cents per share, in 2006.

Despite beating his profit targets, Sun CEO Jonathan Schwartz admitted in a conference call last night that there is still plenty of room for improvement. "Our results reflect weaknesses in the U.S. and in storage."

Revenues from Sun's data center division, which includes server and storage technologies, were $639 million in the fourth quarter, down 10.4 percent on the same period last year. Schwartz blamed the OEM arena for much of this shortfall. "Our OEM offerings were not as strong as we would like," he said. "We know that we have got some work to do there."Despite the well-publicized challenges in integrating the $4.1 billion StorageTek acquisition, Schwartz said that this part of Sun's portfolio was not to blame for its poor storage performance. (See Sun to Acquire StorageTek for $4.1B and Sun Reveals Roadmap.) "We're running the business as expected on the archive and tape side -- we feel that that business is going well."

In the NAS space, Schwartz took the opportunity to sing the praises of the X4500 server/storage hybrid, which is better known as 'Thumper.' (See Sun Thumps Storage-Server Hybrid, Sun Signals Say 'Storage', and Sun Reshuffles Storage... Again.) "Thumper has only been in the market for less than three quarters [and] we're already at a $100 million run-rate."

Although Schwartz kept his product roadmap cards close to his chest on last night's call, he hinted that more server/storage hybrids are in the offing. Thumper "lays the foundation" for a new family of data warehousing appliances, he said, but did not go into specifics.

The exec was a little more forthcoming on Sun's "Project Crossbow," which he described as a technology to virtualize network traffic. "Crossbow lets you take a general purpose platform like Niagara [processors] and build networking products out of it." Crossbow will be the vendor's next big product launch, he said.

Sun is not the only vendor experiencing a slowdown in storage spending at the moment. HP, for example, recently noted weakness in its storage business, as did NetApp and Overland. (See HP's Storage Slowdown, Storage Spending Knocks NetApp, Overland Struggles With 'Softness', and Federal IT: Casualty of War.)"We definitely saw a bit of a slowdown in the U.S.," said Schwartz, although he was eager to put a positive glow on Sun's overall results. "This is a good day in the life of Sun. We put a stake in the ground just over a year ago when we introduced our growth plan," he said, and the plan is now being implemented. (See Sun Reshuffles Storage... Again, Sun Takes Action Amidst Concerns, and Schwartz Shakes Up Sun.)

At least one analyst paints a less rosy picture. "We believe that declines in Suns server unit shipments and continued challenges in storage yielded flat revenue growth for the quarter," wrote TBR analyst Josh Farina in a note released last night. "Sun’s revenue growth for the quarter of 0.2 percent was the weakest in nine quarters, and continues on its declining path since peaking in 2Q '06."

— James Rogers, Senior Editor Byte and Switch

  • Hewlett-Packard Co. (NYSE: HPQ)

  • Network Appliance Inc. (Nasdaq: NTAP)

  • Overland Storage Inc. (Nasdaq: OVRL)

  • Sun Microsystems Inc. (Nasdaq: SUNW)

  • Technology Business Research Inc. (TBR)

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