Skip to main content

Sun's a Hot Potato for Oracle

Sun's ongoing problems will soon be Oracle's problem.

Updated from 11:48 a.m. EDT

Database giant



will have a major challenge breathing life into

Sun Microsystems'


ailing business, if the server and software firm's

third-quarter results

are anything to go by.

The Santa Clara, Calif.-based firm posted a widening loss and saw its sales plummet well below analysts' estimates when it released its figures Tuesday.

Oracle sent shockwaves through the tech sector earlier this month when it threw down $7.4 billion to


the beleaguered tech giant, which had also been a






Sun faces multiple challenges as it enters its last few months as an independent entity. Like the rest of the tech sector, the company is wrestling with an extremely difficult economy, and Sun's many rivals are looking to exploit the uncertainty that has surrounded the comany. To make matters worse, the third-quarter results also suggest that customers are sitting on their hands until Oracle CEO Larry Ellison unveils his grand vision for Sun's products.

"Weakness in the company's high-end servers

is bleeding into its midrange and x86-based servers as well," wrote David Bailey, an analyst at Goldman Sachs, in a note released Wednesday.

Although Sun reduced its operating expenditure by 15% year over year, the firm's operating expenditure as a percentage of revenue increased by 3 percentage points, thanks to plunging sales. Citing that these trends are likely to continue, Goldman Sachs lowered its estimates for Sun, with the company now expected to post a loss of 50 cents a share in 2009, down from the previous estimate of a 16-cent loss. For 2010, the analyst firm predicts earnings of 11 cents a share, compared to its prior estimate of 25 cents a share.

Sun's shares dipped 0.32%, to $9.14 in the aftermath of the company's results, despite a broader advance in tech stocks that saw the Nasdaq rise 2.23%.

Investors looking for any


into Sun's long-term product roadmap will have been disappointed with Tuesday's report. With the Oracle deal expected to close in the next few months, Sun did not host a conference call to discuss its financials, and the company's press release was strangely devoid of any comment from CEO Jonathan Schwartz.

Sun's results offered some glimmers of hope, however. The firm grew billings for its Open Storage business 63% year over year, and billings for its Total Software products climbed 28% compared to the prior year.

In what it described as its "key growth" areas, such as Open Storage, Total Software, CMT servers and x64 servers, Sun grew its billings almost 4% compared to the prior year.

That said, at least one analyst warned that investors should not get carried away.

"While billings growth is generally favorable, we believe it's a sign that Sun customers are delaying purchases until more clarity is given on the future of Sun," wrote Josh Farina, an analyst at Technology Business Research, in a note released Tuesday. "We believe Sun's final quarter of fiscal 2009 will face similar pressures."

The analyst explained that Sun's shipments of x86 servers declined for the first time during the third quarter, underlining the scale of the challenges facing the firm.

"Customer spending remains weak due to the down economy and customers are being increasingly cautious about who they purchase from - which we believe is leading customers to purchase from vendors with solid futures, such as IBM and HP," he added.

Despite enjoying rapid growth during the era, Sun's star has waned in recent years as the company earned a reputation for under-performing and execution issues.

Oracle investors appeared to shrug off Sun's results, and the software firm's shares rose 5 cents, or 0.25%, to $19.79 Wednesday.