Meet the New Sun, Better Than the Old Sun

Sun Microsystems (Nasdaq: JAVA  ) ain't what it used to be. Once a premier purveyor of enterprise-class Unix servers with a little bit of software on the side, the new Sun relies on virtualization-friendly blade servers, storage arrays, and open-source software. And that's probably a good thing.

Overall, Sun's sales slowed by 7% year over year to around $3.0 billion. Last year's $0.10 net profit per share evaporated in a $1.45 billion goodwill impairment charge, landing at a $2.24 GAAP net loss per share. CEO Jonathan Schwartz explained that "the entire amount of goodwill associated with our systems reporting unit" -- some of which would likely be leftovers from its $4.1 billion buyout of StorageTek three years ago -- had to go down the drain. Big-iron server sales are dropping like hot potatoes. Sun's workstations haven't been much of factor for years.

MySQL acquisition could open new opportunities for Sun. The 11 million users of the open-source database generally run it on Microsoft (Nasdaq: MSFT  ) Windows and Linux platforms like Red Hat (NYSE: RHT  ) or Novell's (Nasdaq: NOVL  ) SUSE. Sun's sales force is "meeting a lot of folks that we're not historically talking to," said Schwartz. "Very few of them are currently running on Sun infrastructure. We'd like to make a change there."

This company doesn't look like a serious rival to server specialists like IBM (NYSE: IBM  ) or Hewlett-Packard (NYSE: HPQ  ) anymore. Instead, Sun is running headlong into direct battle with Microsoft and Linux, riding a combination of MySQL databases, Java middleware, and the Solaris operating system to tie it all together. There's logic to the pitch. Software licenses are expensive. If Schwartz and his team can make money from users wanting to downshift from, say, Oracle's (Nasdaq: ORCL  ) vise-like grip to the more wallet-friendly MySQL, so be it.

Sounds great in theory, but Mr. Market only sees the massive writedown and took Jonathan's stock behind the woodshed for a sound beating today. If Sun looked cheap four days ago, it's an even more enticing value today.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. At 6'5", he'd look right at home running errands for the Adams Family. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On November 01, 2008, at 10:12 PM, Trexdad wrote:

    What? Did Scott and Jonathan treat you to a free lunch at the Executive Briefing Center? How else to explain such a ridiculous analysis.

    Sun has been throwing money at things that don't make money - especially software - while starving the high end servers that had been paying the bills and loading - not to mention putting in management that doesn't understand the high-end business. It's no wonder that it doesn't look like a serious rival to IBM and HP, but it's a mistake to think they can rival Microsoft or Linux either. Their ambition exceeds their capabilities.

    I wouldn't buy Sun until they get rid of McNealy, Schwartz and all their cronies 2 or 3 levels down. The management chain is rotten. They should split off the software groups and make them pay their own way (they wouldn't last). The R&D budget should be slashed too. The time is long past for open-ended play in the sandbox with no clear business objectives.

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