Sun has wrung a 94 percent increase in net income from a 1.4 percent increase revenue in its fiscal second quarter. Revenue was almost flat at $3.615 billion compared to $3.566 billion in the year ago quarter. Net income was $260 million compared to $133 million in Q2 07.
The company's gross margin was up 3.5 percent at 48.5 percent compared to 45 percent in the year-ago quarter.
Although product revenues declined by 0.5 percent computer systems sales rose 2.4 percent and storage product sales rose 4.6 percent. Within that disk-based storage sales, revenues rose 7 percent. In the results conference call CEO Jonathan Schwartz said that the new X4500 (Thumper) product line recorded $26 million of sales revenues.
He also announced a Project Blackbox sale to Russia's largest mobile phone operator, MTS, with Blackbox being used to provide datacentre facilities across its service geographies. Blackbox is Sun's datacentre in a shipping container. Schwartz commented in the results conference call that: "We're very happy with the storage business this quarter."
There was, however, no mention of Honeycomb.
The quarter's revenues did not include any contribution from MySQL and also suffered a little from a Sell Out program to remove excess inventory from the channel.
CFO Michael Lehman said Sun was in transition to its new business model. This is a model where there is a vast take-up of open source software supported by Sun which drags along hardware, software and service revenues in its wake. Schwartz said that Sun recorded more than 1,000 new customers this quarter and Lehman said that he expected growth in revenues to accelerate to 5 percent or slightly over that in the second half of Sun's financial year.
Number one priority
Schwartz affirmed that: "Growth absolutely remains our number one priority." Growth seems to be slow in coming. With it being dependent on Sun-supported open source software take-up there is a lag between software download volumes and sales revenue increases. The company has to get its free software into the hands of customers who prefer it to other open source software.
Sun isn't just committed to building better chips and boxes, it is committed to building up compelling open source software stacks spanning the space from the hardware to applications. For example it has recently strengthened its NFS stack. The idea is that customers can now build an NFS-based file resource without having to buy expensive proprietary software or hardware.
These software stacks will run on both Sun and other vendors' processor hardware and are open, not locking customers in to Sun's own hardware, be that x86-based or Sparc. It means that the average income per Sun software download is low. Sun needs to grow this and can't afford for too many Sun open source software downloaders to be freeloaders.
Schwartz believes that things like ZFS and the core open source file system: "are giving us the opportunity to have a fundamentally different discussion with customers." He likens this to the same sorts of discussions that lay behind the phenomenal uptake in Linux over the past few years. ZFS is for: "storage customers who want to pay a lot less and get a lot more flexibility."
The company appears to believe that its sales will accelerate as its hardware, paid-for software, and support services are taken up by customers in the vast cloud of Solaris and associated software downloaders. These will soon be augmented by the vast numbers of MySQL users and bulked up again by ZFS as its popularity spreads.
With the growth in Sun software downloads and growth in new customers, plus growth in deferred income representing multi-year implementations of projects involving Sun's products by customers, Schwartz and his team believe they have the right formula for Sun's sales growth.
It's like that baseball field movie. Build the field and the fans will come. Build a great field of Sun open source software users and topline sales revenue growth will come - it will, it will.
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