Sun's Profits Dip 73 Percent, Pins Hopes on Open Source

Sun Microsystems, which is pinning much of its future on open source, just reported its fourth-quarter numbers, and they were not rosy. The company's profit dipped 73 percent, year over year, for the fiscal quarter ended June 30th. Some observers are blaming the drop in profit on slumping revenues, but revenues were $3.78 billion, down only 1.4 percent from a year ago, and the company has continued with cost-cutting measures as the economy underperforms. The real reason for the slump in profits is that Sun has faced heavy competition from IBM and Hewlett-Packard in the high margin server market. Still, Sun maintains that its many open source initiatives will lead it toward brighter days.

"Looking forward, we remain confident in open source innovation as the accelerant to our growth strategy through increased adoption of our open source offerings,” Jonathan Schwartz, Sun CEO, said in a statement.

MySQL, OpenSolaris, VirtualBox (virtualization) and many other open source technologies remain centers of focus at Sun. Likewise, it's not slowing down the pace at which it unveils new open source initiatives.

At the recent OSCON conference in Oregon, Sun announced the Sun Web Stack, an enterprise scale AMP (Apache/MySQL/Perl or PHP stack for Solaris and Linux. It also announced that it is making the core components of the Sun Java System Web Server 7.0 and Sun Java System Web Proxy offerings open source.

As Sun continues to push forward with meaningful open source software, stacks and components, I think it will eventually see the strategy pay off. That's because its high-margin hardware offerings--servers, in particular, and storage systems--will be cheaper to deploy than competition from IBM and HP, even as its open source software offerings gain in popularity.

At the moment, though, in a bad economy, Sun continues to face harsh criticism and share downgrades. It has announced a new $1 billion share repurchase program in addition to the $3 billion repurchase program it launched in 2007. 

We've made the point before that gloomy economic times can bode well for open source, including commercial open source strategies. Matt Asay recently pointed out that companies such as Red Hat and Sun could benefit from a bad economy since there are "efficiency gains to be had by dumping BEA for JBoss, Oracle for MySQL, etc." In my opinion, it's still very early in the game for Sun's open source bets. It needs time for adoption, popularity, and favorable buzz to spread.