Oracle's headache as Sun revenue drops 20%

Sun Microsystems has reported a sharp drop in revenue for its third quarter, as the company prepares for its acquisition by Oracle.

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Sun Microsystems has reported a sharp drop in revenue for its third quarter, as the company prepares for its acquisition by Oracle.

Sun's revenue for the quarter was $2.61 billion, it announced Tuesday, down 20 percent from a year earlier and below the $2.86 billion that financial analysts had been expecting, according to Thomson Reuters. Sales of Sun's x86 servers, which had been a growing area for the company, declined for the first time.

Its net loss was $201 million, up from last year's loss of $34 million, or $0.04 per share. This year's figure included a restructuring charge of $46 million, related mostly to the 5,000 to 6,000 layoffs that Sun announced in November.

Sun counts several financial services companies among its largest customers and thus was hit earlier than most by the current recession.

Oracle was seen by some as an unlikely saviour given its focus on software, and the deal raises questions about what Oracle plans to do with Sun's hardware business after the deal closes this summer. Some analysts expect Oracle to try to sell off Sun's server and chip businesses, while others say it could use them to build more high-end database appliances, along the lines of the Oracle Database Machine it designed with Hewlett-Packard last year.

Oracle has said it was most interested in Sun's Java and Solaris businesses. It also says it will act quickly to make Sun's businesses profitable, which analysts say could mean cutting as many as 10,000 jobs.

Some of Sun's key product areas let it down during the quarter. Besides the drop in x86 shipments, billings from Sun's CMT (Chip Multithreading) Niagara servers, which had been selling well, increased by only 3 percent, the company said.

Total software billings increased by 28 percent from a year earlier, and its open storage products had a strong quarter. But Sun's core Sparc Server business was down, and total server shipments were off by 26 percent, Sun said.

"There were few product categories that had any success this past quarter," said Gartner analyst George Weiss. He attributed the poor results to the economy, the uncertainty caused by the acquisition, and competitors taking advantage of the uncertainty to target Sun customers.

"There will be a lot on Oracle's agenda to at least try to reverse the direction in some of these product categories," Weiss said.

Customers may not have a clear picture of how Oracle plans to integrate Sun's products, and which it will sell off, until six months to a year after the acquisition closes, Weiss noted.

He thinks Oracle will use Sun's hardware to build high-performance database and data-warehousing appliances that "bypass the generic server part of the market," he said. It's unclear yet whether it will do that with x86-type processors or the newer Niagara CMT chips.

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