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Sun's Jonathan Schwartz Explains "Tough" Q1 Results

"All in all, it was a tough quarter for Sun and our customers"

"All in all, it was a tough quarter for Sun and our customers," wrote Sun CEO Jonathan Schwartz yesterday, in a determined attempt via the blogosphere to pour oil on the troubled waters of Sun's dramatic net loss for its first fiscal quarter of 9 cents a share. Among other things he confirmed that Java not only makes money for Sun but is "among the most profitable technology products at Sun."

"Clearly the traditional businesses slowed significantly - with enterprise systems (our largest, mainframe class systems) declining year over year," Schwartz noted, somewhat understatedly. "This time last year, those same systems grew nearly 20%," he added, "so the downturn is having an impact."

Schwartz gave the following synopsis of the quarter and of Sun's business overall:

"At a corporate level in Q1, [our] revenue was down 7% year over year. Growth in our emerging products was more than offset by declines in our traditional, high end products. We were surprised by the magnitude of the decline, which reflected a dramatic slowing in the US and Europe, and the effects the credit crisis is having on our customers - across nearly all geographies and industries, but clearly concentrated among financial services companies."

Schwartz remained defiantly confident in his overall strategy for the company:

"[N]o matter the downturn, we remain exceptionally focused and committed to traditional enterprise computing. The expansion of scale out computing doesn't negate scale up computing - if anything, it leads to even greater demand, over time. IBM was right, mainframes will always be sexy (especially when they run Solaris :)."

But he also took the opportunity to answer and answer two of the recurring questions: how does Sun make money off software when it has open sourced everything in its portfolio, and - specifically - how on earth does it make money off Java?

Here is what he had to say on both topics:

"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 than time).

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?

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 runtimes 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."

Schwartz took time out to reaffirm his belief in the importance of technology: "[F]or discovering drugs, running businesses, modeling supply chains and automating business processes, technology's not getting less important, it's getting more important," he declared, adding: "Even if budgets are tight in the near term."

He ended his blog with a nugget of hope for Sun in the storage space:

"Stay tuned for our newest storage announcements on November 10th... just as the popping of the internet bubble let loose a flood of innovation for the server world, the global credit crisis is about to shake up the storage industry, too."

 

More Stories By Jeremy Geelan

Jeremy Geelan is Chairman & CEO of the 21st Century Internet Group, Inc. and an Executive Academy Member of the International Academy of Digital Arts & Sciences. Formerly he was President & COO at Cloud Expo, Inc. and Conference Chair of the worldwide Cloud Expo series. He appears regularly at conferences and trade shows, speaking to technology audiences across six continents. You can follow him on twitter: @jg21.

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