The Turnaround At Sun (JAVA) Is Dead

Jonathan Schwartz, the CEO of Sun (JAVA) has a famous blog. One of the recent entries might come back to haunt him. He said that Sun would be "combining our Storage and Server product teams." The company is going to put "all its wood behind one arrow." That arrow appears to be storage.

Mr. Schwartz’s problem is that he finds a new arrow every month. It may be open source software, Java,  virtualization, UltraSPARC, or selling his new chips to competing server companies.  The number of arrows grow while the piece of wood does not.

Schwartz has proved to be no better, and perhaps not as good a CEO, as his former boss Scott McNealy. McNealy could have cut costs as well anyone. He certainly could have kept revenue flat, which is what happened in Sun’s last quarter. Revenues for the first quarter of fiscal 2008 were $3.219 billion, an increase of approximately 1 percent as compared with $3.189 billion for the first quarter of fiscal 2007. The company had a tiny profit of $89 million compared to a loss of $56 million last year. Not much of a swing.

Actually, for a company that has pushed its turnaround prospects so hard, the results are embarrassing. The market thought so, too. Sun’s shares fell 2.5% after hours after closing the regular session at $5.71.

Sun traded around $5 when Schwartz took over in April 2006. It will probably trade around $5.50 today. The performance of the Nasdaq has beaten it handily.

Sun survived the dotcom era, but McNealy has to get the credit for that.

But, Sun’s turnaround, Schwartz’s big talking point, is over. It did not work. Sun is a 2% to 3% topline growth company in a world where big tech is delivering double digit revenue improvements.

Douglas A. McIntyre