Sun's Storage Sales Up 5 Percent

Sun's storage business was one of the standouts in a mixed bag of second-quarter results last night, reflecting the firm's recent efforts to bulk up this side of its business.

The vendor's total revenues for the quarter were $3.615 billion, up slightly from $3.566 billion in the same quarter last year, and just above analyst estimates of $3.59 billion.

On a GAAP basis, Sun's earnings were 31 cents on net income of $260 million, compared to 15 cents and $133 million in the same period last year. Analysts had estimated earnings of 30 cents.

Sun's overall product revenue dipped half a percent year-over-year to $2.249 billion, with sales of computer systems products down 2.4 percent over the same period to $1.594 billion.

In stark contrast, the vendor enjoyed solid growth in its storage business, posting revenues of $655 million, up 4.6 percent year-over-year."We are very happy with the performance of the storage business this quarter -- both the performance of the OEM businesses as well as more homegrown technologies," said Sun CEO Jonathan Schwartz, during a conference call last night.

Last year, Schwartz decried the performance of Sun's OEM business as a key factor hindering the growth of the vendor's storage sales.

This year, Sun's storage revenues appear to be moving in the right direction, after a tough spell for the company following its $4.1 billion StorageTek acquisition.

The vendor's disk-based storage sales grew 7 percent compared to the previous year, and sales of the firm's "Thumper" Sun Fire X4500 server/storage hybrid accounted for around $26 million of second-quarter revenues.

Goldman Sachs analyst David Bailey was nonetheless unimpressed by the Thumper figures. "Two of Sun's newer potential growth drivers, Thumper storage and Galaxy PC servers, were disappointing," he wrote in a note this morning. "This places a heavier burden on Sun's traditional SPARC-based servers to drive growth unless Sun can get these products back on track."Sun execs also used last night's call to reiterate their commitment to ZFS technology. "I think this has been generally recognized as a pretty disruptive innovation in the storage marketplace," Schwartz said, in response to an analyst question. "[It is] giving us an opportunity to have a fundamentally different discussion with customers, which is the same open-source revolution that created opportunity for Linux."

The exec was less forthcoming on the vendor's storage roadmap, although he hinted that Sun could be on the lookout for new partners: "We are interested in building out our product line; we are going to be careful about how we go do it, and we are always interested in building new OEM relationships."

Last night, Sun's CEO also underlined his desire to use the recent $1 billion acquisition of database vendor MySQL to push Sun's storage into new markets, notably users relying on the LAMP Web development protocol. "We view the acquisition of MySQL as an accelerator to our growth strategy -- as well as extending our reach into the far broader LAMP community that has yet to meet Sun's server, storage, software, or services."

Analysts on last night's call also grilled Schwartz on the economic climate, particularly given that Sun was hit hard by the most recent slowdown in tech spending. "Our single biggest issue in 2001 was we were seriously and strategically mispositioned -- we just didnt have product that customers wanted," Schwartz replied.

"I think, as we look at some of the anxiety around the economy now, we feel very, very confident that our products really are at the front of the line in terms of what CIOs are looking at."Despite Schwartz's bold words, Goldman Sachs analyst Bailey feels that there is still a question mark hanging over Sun, despite improvements in its operating margin. "Mixed revenue performance and broader tech spending concerns prevent us from getting more positive on the stock at this point," he wrote.

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