Oracle-Sun: Show Me the Sustainable Sun Profits

Oracle-Sun: Show Me the Sustainable Sun Profits

Oracle Sun Is not channel slam dunkSynergy. Total IT solutions. Some folks in the channel media are falling all over themselves calling the Oracle-Sun deal a "slam dunk" for solutions providers. Um, The VAR Guy begs to differ. Here's his second-day look -- and skepticism -- about the deal.

First, a little credit: The beat reporters over at ChannelWeb are out talking to numerous Oracle and Sun solutions providers, who are praising the proposed Oracle-Sun combo. Meanwhile, The VAR Guy is sipping Jamba Juice (Mmmm...) at the airport and digesting the deal.

No doubt, Sun's channel partners have reason to celebrate the $7.4 billion buyout by Oracle. There's only one problem with glowing, upbeat coverage: It preaches to the converted -- solutions providers who were already selling Sun-Oracle solutions.

Rescue Me

Let's be honest: Some Sun solutions providers were desperate for a glimmer of hope. Sun's SPARC hardware business has been contracting for years. Linux and Windows have been chipping away at the once powerful Sun-Oracle combo in financial services, telecom and other vertical markets. No doubt, Oracle solutions providers increasingly focus on Oracle for Windows and Linux, leaving Solaris and SPARC in maintenance mode.

Yes, Sun has made progress in multiple markets, earning some momentum in the Intel server space and pushing deeper into open source storage, among other areas. But larger industry trends are undeniable.

During Sun's second quarter ended Dec. 28, revenues fell 10.9 percent to $3.22 billion; total gross margin as a percent of revenues was 41.9, a decrease of 6.6 percentage points; and net loss for Q2 was $209 million as compared with a net income of $260 million for the corresponding quarter a year earlier. Oh, and let's not forget Sun reported a $1.68 billion Q1 net loss. That's billion, with a B.

Oracle: Sun's Friend ... And Foe ... And Friend Again

During the 1990s, Sun and Oracle were a dominant business combo. But Oracle has spent recent years hosting conferences that evangelize grid computing on Linux -- and painting Unix as an expensive legacy option for only the highest-end applications.

Are we to believe Solaris and Sun's hardware will somehow rise again under Oracle's ownership? No doubt, IBM successfully revived its mainframe business after multiple missteps in the late 1980s and early 1990s. And demanding cloud computing deployments could give Solaris new life in many data centers. But fixing Sun is going to require years of attention from Oracle.

Instead of listening to Sun's own channel partners -- many of whom were desperate to see Sun acquired by a viable company -- keep your eyes on the real issues:
  • Do Oracle -- and the IT channel -- really expect to generate profits from Sun's hardware in the years ahead?
  • How quickly can Oracle stabilize Sun's high-end hardware business. Or better yet: Can it be stabilized?
  • Will Oracle accelerate Sun's push into Intel-based hardware?
  • Will Sun employees stick around as they transition from an engineering-focused culture to a sales-driven culture?
No doubt, Oracle is a master at managing big acquisitions. And massive staff cuts could bring Sun's costs under control. But let's see how those Sun-Oracle partners are feeling a year from now.

In the meantime, this Barron's blog entry offers some quick-hit, real-world bullet points about the Oracle-Sun deal.

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