Sun Financials: Not Good News for Open Source
by Mike Gunderloy - May. 02, 2008Comments (4)- Related Blog Posts
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Sun Microsystems has announced its 3rd Quarter earnings - and its stock promptly took a substantial hit. No wonder, since the company managed to report a loss of $34 million instead of the profit that analysts were expecting, and may be cutting up to 7.5% of its employees - 2500 jobs. While this certainly isn't good news for Sun, it's not great news for open source either, since the company has staked its future on shipping all of its assets as open source, including the recently-purchased MySQL database.
A detailed look at the reported financials shows that beyond the earnings numbers there are some other troublesome weak spots. Total net revenues are down compared to a year ago, which means that this is not just a reflection of one-time expenses (though the MySQL acquisition did result in the difference between break-even and a 4 cent per share loss). Compared to 9 months ago, cash is down (bad), inventory is up (bad), and goodwill has been upped by over $750 million - presumably accounting for the huge purchase price paid for MySQL. The net result is that shareholder equity - the actual worth of the company to its owners - has dropped by nearly $1.4 billion in the last 9 months.
Sun blames the weak US economy for much of its troubles, but it's clear that if business doesn't turn around for them (and they're not forecasting a booming 4th quarter), open source is going to get part of the blame. If they don't execute on the plan to make profits from services and sales related to open source, eventually that MySQL goodwill is going to come in for a second look - just as it did at AOL Time Warner.
The current news is not so bleak as the stock price drop might lead you to believe. After all, the company did still sell over $3 billion in products and services in the January-March quarter. And one quarter does not necessarily indicate the company's future earnings potential. But the situation does warrant close monitoring, both by investors and by those outside observers who are hoping that a company of Sun's size can, in the long run, provide a ringing endorsement of open source as a corporate strategy.
