The story on Sun's Q1FY09 results - a loss, or a fresh start? Sun and the future

Beth Pariseau just pushed out a SearchStorage story on Sun's earnings call yesterday. Despite the bleak headlines, I don't see this as a bad quarter for Sun, and Beth only told part of my story. Since it's Friday, and I plan no serious posts today, let me expand.

I look at last quarter's bottom line (03Q8 in the real world, Q1FY09 in Sun's financial world) as non-GAAP without the associated goodwill hit of $1.4B (more on that later). Those numbers aren't so bad ($65M loss) and I think more realistically reflect a transitioning Sun.

The way I see it, is Sun has gone through a major shift in Identity. As I wrote in my OpenSource Smackdown post the other day, I think Sun may come out as a shining exemplification of the new way to do business in an increasingly open source influenced marketplace. While it's easy to look back and be dubious about Sun's future because of seemingly multiple identity shifts, lots of those changes have been contributing factors to where Sun is now. Where Sun is now seems to be in possession of a technology portfolio that could be a deadly competitive weapon in the marketplace around next generation computing infrastructure. Let's take a look.

On the virtualization front, Sun has a set of system partitioning and virtualization capabilities that are almost second to none. Containers, xVM, VirtualBox, xVM OpsCenter, a complete VDI stack, etc. Want more? There's more, just start looking for opportunities to combine them with other existent or emerging Sun technologies, maybe Open HA Cluster, or Comstar, or emerging pNFS, or Lustre, or various other technologies. On the file system side, ZFS is increasingly recognized as the most cutting edge file system on the market, and gives Sun's virtualization strategy capabilities that the other players are still reaching for. And when you dive into ZFS, and look at what is evolving in the way of support for Lustre, SSD via L2ARC and ZIL, or even third party integrated capabilities like greenByte's ZFS-based de-dupe, it is clear ZFS can do much, much more. On the hardware side, Sun started cutting a new path with Thumper while most of us (including me) were doubters, but in the cloud computing paradigm, Thumper and its progeny have resonated. Meanwhile, Sun's Niagara processing architecture can make your head spin, and leave you wondering why we're not seeing that level of innovation in other processors in the market. And if you've ever been hands on with that processor, like I have, you'll be wondering this even more. And we haven't even touched application level technology like MySQL, and the potential to partition and scale out, or talk of the next gen of MySQL for disassociated scale-out, or the entire Java portfolio, ESBs, Tarantella, HighGround, SeeBeyond, Aduva, etc. etc.

In another article on the other side of the drink, the following content was posted, attributed to Charles Curran:

"The banker said he viewed Sun in the category of another Wang, the long-time defunct hardware company. To survive, hardware companies need to become more software or services focused or they disappear. In Sun’s case, it has proven a challenge to make that transition, he noted."

The way I see it, Sun is near the end of a transition, and currently owns a comprehensive, well aligned IP portfolio. And that is what makes me think Sun is well positioned - I am hard pressed to pick out visible technologies that are not well aligned, and that is not the case with other major vendors in the industry. Moreover, in Sun's case, I think the hardware side remains a key differentiator, it has just been streamlined. Sun has the goods to do a throw down with the best of the best around new processor and bus architectures, memory architecture evolutions like NUMA, etc. In fact some of that work may lead to key innovations in the future as we increasingly see technologies popup that may someday allow us to physically disassociate and then recombine or share processors and memory (we're starting to see possibilities among IO Virtualization over PCI-e buses ala NextIO [MR-IOV for the interested] and huge switched memory devices from Violin Memory).

Sun may even be in the best position in the industry to enable cloud technologies without lock-in, a concern that the press has been blowing the horn about lately.

On the goodwill issue, to the best of my knowledge, nobody knows for sure what is involved here. Looking at Sun's stock prices and the reaction today and yesterday, I'd say most of this has long been factored into valuation, and in a downturning economy, kudos to Sun for executing this now. While I'm not a financial guy or a stock owner, I'm inclined to think I'd rather carry out this exercise in a recessionary market where valuations and potential goodwill damage are likely to be greatest. This seems to me to be a killer exercise in building a foundation for post-recession growth.

On this front, let me add, my opinions are my own, and I'm sure not a qualified financial guy.

In my view, I think Sun has a killer position in this market to reap rewards as the market shifts to next generation computing architectures. Harnessing that message and getting it out to an audience bigger than the current Solaris community is the challenge, but there too, Sun seems to be having some success. In the long term, Sun seems to have a vision for the next gen computing paradigm that is deep and broad, maybe to the point of being exceptional in the marketplace. In the short term, multi-faceted attacks on bottom line cost savings may be the name of the game, and with solutions like Thumper, Niagara, SSD, Java, MySQL, xVM, Solaris 10 and more, Sun seems to be executing. The revenue report this quarter is about conversion. Conversion to the new paradigm, and conversion to these new attacks on the marketplace.