Sun Slips on Storage

Sun reported its second consecutive quarter of profitability with its third-quarter results today, although storage continues to be a blot on the vendor's financials. (See Sun Delivers Quarter of Growth, Sun Returns to Profitability, and Storage Slows Down Sun.)

On a GAAP basis, Sun's earnings were 2 cents on net income of $67 million, compared to a net loss of 6 cents and $217 million in the year-ago quarter. Analysts had estimated earnings of 1 cent.

The vendor's quarterly revenues were $3.283 billion, up 3.3 percent on the same period last year, but below analyst estimates of $3.42 billion.

Revenues from Sun's data management division, which includes storage, were $550 million, down 0.2 percent year over year, prompting CEO Jonathan Schwartz to voice his displeasure on a conference call tonight. "Our storage business showed pockets of strength, but wasn't as strong as I would have liked," he said.

The results suggest that Sun has still got plenty of work to do around its storage offerings. The vendor, which has struggled to swallow its $4.1 billion StorageTek acquisition, has spent the last year or so trying to make sense of its storage business. (See Sun to Acquire StorageTek for $4.1B, Sun Returns to Profitability, and Sun Reveals Roadmap.)Whereas Sun's archiving products and tape performed well, the same could not be said of the vendor's disk portfolio, according to Schwartz, who is hopeful that the recent decision to open up its NAS source code will turn this situation around. (See Sun Opens Up on NAS.) "We continue to see Solaris as a key differentiator, not just in systems, but in storage as well," he said.

The CEO also blamed the U.S. and the U.K. for the quarter's revenue performance. "We expected Q3 to be seasonally challenging and it was -- we did face a difficult environment in the U.S. and U.K. markets, particularly in March," he said.

Sun's CFO Mike Lehman also attempted to downplay the revenue issue, citing both seasonality and users delaying their purchase decisions following Sun's recent partnership with Fujitsu. (See SNW: First Take and Fujitsu Adds NAS to Eternus.) "The March quarter is always seasonally challenging," he said. "Part of the slowdown was anticipation of higher performing products that were announced by Sun and Fujitsu last week."

In response to a question from an analyst, the exec also hinted that Sun, which has already undergone job losses and a major corporate restructuring, may be planning more upheaval. (See Sun Reshuffles Storage... Again, Sun Takes Action Amidst Concerns, and Schwartz Shakes Up Sun.) "We're looking very closely at headcount by activity and function," he said.

Sun also provided insight into its product roadmap during yesterday's earnings call, with the vendor planning to launch its first video-related product, combining server and storage features, this week. This will be followed in June by a new blade offering, code-named "Constellation," which will combines Intel, AMD, and Sun's own SPARC processors.In after-hours trading, Sun shares fell 36 cents (6.06 percent) to $5.59.

James Rogers, Senior Editor Byte and Switch