Diversified Sun Returns to Profitability

On Thursday, Sun Microsystems reported fiscal fourth-quarter profits of US$20 million, signaling a return to profitability for the technology giant amid industry-wide economic woes.

However, while Sun realized profits, fourth-quarter revenues were down 16.8 percent at $3.4 billion compared with $4 billion a year ago.

For the full 2002 fiscal year, Sun reported revenues of $12.5 billion, down 32 percent from record high 2001 revenues. Still, the server seller did see a 10 percent jump over third-quarter revenues.

“We stated a goal of reporting a profit this quarter and we achieved that goal,” said Sun chief executive officer Scott McNealy, adding that the goal was met while protecting research and development investments, aggressively managing cash balances and gaining market share from competitors.

Selling Severs

Indeed, Sun is gaining market share in a lackluster server segment. Sun recently took the lead in first-quarter Unix sales, the largest server market segment, according to a Gartner Dataquest study.

The company achieved fourth-quarter gains in sales of its UltraSPARC III server products, including the Sun Fire server range.

“The Sun Fire server has been particularly well-received, and is taking sales from the competition while strengthening and enhancing sales of other Sun high-end products,” said McNealy.

Diversified Business Model

But Sun’s resurrection during a downward spiral in technology spending goes beyond stealing market share from IBM and others.

The company’s return to profitability is largely due to aggressive moves toward a diversified business model, according to Aberdeen Group research director Dana Gardner.

“Sun is focusing more on software and services rather than an over-reliance on hardware sales,” Gardner told the E-Commerce Times. “That will bode well in the future as software sales pick up.”

By offering both solution stacks and standalone components, the Santa Clara, California-based company appeals to a much broader customer base.

Sun also saw revenue growth in the storage market — a segment that analysts predict will make a strong comeback over the short-term.

Looking Ahead

“Sun’s overall position is solid and the future is bright,” said Gardner. “The question is, when will the future arrive for Sun?”

When the future does arrive, analysts expect platform-oriented companies like Sun, which produce entire solutions tied across the spectrum of operating systems, middleware, applications and tools, to have an advantage.

On the other hand, players offering only standalone products that are not deeply integrated or associated with a framework or operating system might not survive.

Sun could be in a position, said analysts, to scoop up smaller players after the market shakeout.

“If you have patience and faith that technology is the underpinning of productivity in our economy, then Sun, at $5 a share, is a pretty good deal,” said Gardner.

IBM could not immediately be reached for comment.

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