| By Roger Strukhoff |
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| June 2, 2006 12:45 PM EDT |
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"The way we're going to fix this company is through revenue growth," Sun chairman Scott McNealy (pictured during the happy days) told attendees at a Sun analyst conference, although he said the company also plans to cut costs. Reinforcing the latter point, the company CFO said the company was "on track" to cut a quarter-billion dollars in operating expenses over the current fiscal year, with a similar reduction planned for the following year.
One key revenue-growth plan is increasing the "attach rate"--selling storage and services along with Sun's core server products, McNealy said. And, "you're going to hear the words 'recurring revenue' a lot over the next few years," as Sun sells subscriptions for hardware, software and services such as remote management, McNealy said.
The above comments come from 2004. Since then:
Revenue actually declined in the ensuing fiscal year (from about $11.18 billion to $11.07 billion), and cost-cutting aside, Sun took more than a billion-dollar loss on operating expenses. Revenue finally did recover in the quarter ending December 2005, and was over the $3 billion level in the most recent quarter. But the quarterly and annual losses, both on operating expenses and net income, have continued unabated.
Sun's acquisition of StorageTek has not been popular with analysts and has done nothing to boost the company's stock price. As storage analyst Marc Farley has said more than once, "the $4.1 billion spent on StorageTek should have simply gone to the shareholders." Farley notes that Sun customers have a range of storage options, and claims that this deal, which was greenlighted by then-COO Jonathan Schwartz, brings no uniqueness to Sun's selling proposition.
"Recurring revenue" was not found in the most recent high-level presentation to analysts, which was delivered by Schwartz in February of this year.
The initial reaction from analysts, and the stock market, to Sun's announcements of a "reduction in force" of 4,000 to 5,000 jobs over the next six months was one of too little, too late. The stock price plunged almost 7 percent immediately after the announcement became known, then recovered about 80% of that decline. It was declining a bit more on June 2 as this story was being posted.
At approximately 10:00AM eastern time on June 2, the stock price stood at $4.49, about in the middle of its most recent 52-week range. It's "mean recommendation" by analysts, with 1.0 being a strong buy and 5.0 being a strong sell, has remained at 2.9 this week, slightly below a previous level of 3.0 but above the S&P average of 2.43. In verbal terms, the analyst consensus remains "hold."
There has been no word yet on exactly where the cuts will be made, although the bulk of them will be in the San Francisco Bay Area, where Sun will sell off its "Siberian" office in the East Bay, stop leasing another large facility, and concentrate on its two core campuses, the renovated mental hospital that serves as its Santa Clara headquarters and the sprawling Leviathan in East Palo Atlo at the foot of the Dumbarton Bridge, known fondly to all as "Sun Quentin."
One source inside Sun said that everyone is just waiting to see how the ax falls. But so far, "all we've seen is Scott put into the lone figurehead position of Chairman of the Board and John Loiacano lose his EVP of software position" [to Rich Green].
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