Sun put out their third quarter earnings today. Those that have seen them probably share a concern that I have about the stability and durability of the company and its products. Clearly we are a Sun customer. Every product we are proposing to be used in the People, Ideas & Objects application modules is a Sun product first and foremost. I feel that they have "some skin in the game" and are therefore easily motivated to make their technology work, and they have.
We can't afford any of the finger pointing between vendors that we have seen in the past systems. That game is unacceptable to the users, developers, account managers, project managers and investors in the oil and gas industry. This expectation is also in line with the companies genetic makeup. They are an engineering firm, first and foremost with most of the technologies being far superior to the competitions. The only complaint I have of Sun is that I wish they would hire some people to take out the garbage. And what I mean by that is they have a tendency to solve the big problems and unfortunately the other less problematic tasks get overlooked. This is not a significant problem but one that shows up in their marketing at times.
Speaking of marketing, the open source initiatives the company has implemented are the reason that the risks in committing to them are minor. We would still be able to use and improve Java for our needs even if the companies receivers were hounding the researchers. Try that with an IBM or HP.
Jonathon Schwartz the President and CEO is an avid blogger and has been quoted in innovation in oil and gas many times. His blog post today provides a wealth of information that is more informal then the statutory reporting, and hence useful. Comments like these from Jonathon are the ones that make me feel that sticking with them carries little to no risk.
What went well within the quarter?
The biggest highlights were the performance of our Solaris based, chip multi-threading (CMT) systems, which again grew a whopping 80%, year over year. These systems leverage awareness of Solaris/Opensolaris and our outstanding ISV portfolio, and are driven by extreme energy
efficiency and virtualization - attributes we just multiplied with the launch of our newest CMT system: the T5440.
Simultaneously, our Open Storage systems also delivered a great quarter, up 150+% year over year. These systems, known by many as Thumpers, are amplified by the awareness of our open source ZFS file system, a technology at the heart of Sun's storage business. You'll be hearing more about Open Storage at a launch event we're holding on November 10th. If you're technical, and you want some hints about what we're about to unveil, click here.
And finally, most of our software business grew - including MySQL, Java, alongside Solaris, management and our virtualization products. As we've been saying, open source is a great distribution model - and it feeds a great revenue model.
Now, how is Software growing if you give everything away?
We make our software freely available to enable its distribution to the farthest reaches of the market - which we then monetize with commercial subscriptions and services, alongside optimized hardware systems (like Open Storage, above). We continue to reach customers that have already settled on our software - the process of selling to them is simplified by the fact they're already using our core products. And unlike most university students (who typically have more time than money), our paying customers view downtime or administrative complexity as more expensive than a software subscription (that is, they have more money
Thus, customers will pay, and continue to pay for access to enterprise grade features, along with mission critical support and maintenance - the Software business is both a license, subscription and services business.
To understand the total size and value of Software at Sun, you need to look at billings alongside our multi billion dollar support streams - remembering that a lot of our software is sold as a subscription service (remember, it's open source). In addition, you have to recognize that how much a "Systems Service" support contract is attributable to software is entirely subjective (we don't price them separately to customers). It's like asking how much revenue a mobile phone manufacturer should attribute to their operating system - you're not charged separately at the point of sale.
Wait, you make money off Java?Noting the importance of the customer in their product offerings...
Yes, it's among the most profitable technology products at Sun - and improving. Java's one of the most popularly distributed pieces of Software on the internet, we distribute over a million Java run times a day to users across every OS and geography on PC's. That helps us reach a very broad community of users and, more importantly, developers. We have some exciting news coming up around these distribution volumes - and their value to us, and others.
What is Sun focusing on?When I look at the firms offerings and see the stock's price, a mere $4.0 billion market cap, I shake my head. I think Sun has put themselves out in front of the competition. And I think that the firm is dedicated to doing the right things right, which makes them particularly difficult to understand. Open source and proprietary systems are the tools of building a strong firm for the long run. The problem for people investing in the firm is that the story doesn't necessarily fit into a $4.0 billion package. Given time the firm will be able to better articulate their story. This will only happen after the general public can better understand the difficult concepts that the firm operates with.
Strategically, we continue to focus on two core areas - creating the world's largest, and fastest growing developer communities - for whom we build the products, services and technologies on which they'll build their products and services. With brands like MySQL, Java and OpenSolaris - we measure and drive their adoption very aggressively.
And secondly, we deliver compelling commercial offers to those deploying applications - across a diversity of industries - through commercial subscription, services and optimized system products. That is, we sell data-center systems, software and services.
We're focused on today's customers with our current products and services, and tomorrow's customers with our investments in freely distributed software.
Operationally, we're focused on execution - in the field, in the labs, and on behalf of our shareholders. Innovation loves a crisis, even when the stock markets don't - and Sun's positioned very well to supply the platforms on which the next generation of clouds will be
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