April 27, 2005

Why Sun's lack of revenue growth is a telling statistic

Author: Melanie Hollands

On April 14, Sun Microsystems reported disappointing earnings for its third fiscal
quarter
, which ended March 27, 2005. The company missed both revenue and EPS
estimates. Sun's total revenues for the quarter were $2.625 billion --
Melanie Hollands

down 1 percent (from $2.651 billion) year-over-year, and down a not-inconsiderable 7 percent (from $2.843 billion) sequentially. Sun's revenue weakness doesn't come as a surprise, as this column has been
concerned about Sun's revenue prospects for around 18 months. More
recently, on Jan. 14
and Sept. 17, this column wrote that in spite of enthusiasm in the media and
investment community (based on one quarter of sequential growth), for
Sun's growth prospects that its longer-term outlook would remain muted.

Sun's server business was particularly weak, down around 9 percent
sequentially, as was the storage business, down 13 percent
sequentially. The server business at large appears to be slowing down.
Of all the major vendors -- IBM, HP, Dell, a
couple of the Asian players -- Sun, the weakest player, is the most
vulnerable to this trend. In particular, consider the Unix server
business. IBM is the strongest player here, and even though it
mis-executed during the quarter, its Unix server sales grew 12 percent
sequentially for the March quarter; whereas Sun's grew only 2 percent.

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