Financial
Reports: It All Depends
On Expectations
Last
week, both Sun and IBM reported their quarterly financial results.
Their treatment by the financial and industry analysts was,
as usual, based as much on expectations as results.
It’s also worth noting that the comparison of the two
results was less than flattering to Sun, which has long used the
general depression of sales in the technology market as a reason for
their financial woes. That
is harder now with IBM and others reporting very respectable
results,
IBM
results for the quarter and the year were up.
IBM’s revenue for the quarter was $25.9 billion, 9% above
its results for the end of 2002.
Profits stood at $2.7 billion ($1.55 per share), up 40% over
last year. IBM
executives said that the continuing success of its on-demand
strategy and utility computing offerings, plus strong results in
hardware (especially the mainframe Z series) and software
(especially WebSphere middleware and Tivoli systems management) were
behind the good news. CEO
Palmisano says the client-buying environment is steadily improving,
giving IBM good reason to be enthusiastic about its prospects for
2004 and beyond.
In
contrast, Sun Microsystems, reporting on the same calendar quarter
(for IBM the last quarter of 2003 is their year-end, for Sun it’s
the second fiscal quarter of 2004), the company showed revenues of
$2.888 billion, an increase over the previous quarter of 13.9% and a
decline from the previous year of 0.9%.
Sun lost $125 million ion the quarter ($0.04 per share), much
better than their $2.283 billion ($0.72 per share) loss for the
previous (second) quarter of 2003.
As
CEO Scott McNealy noted, the quarter represented progress for Sun,
with the announcement of 20 new products, an alliance with AMD, and
the hope that their new software strategy will put Sun in a strong
position for calendar 2004. Sun
noted that they had used about $500 million of their previous $5.5
billion cash reserve, needed to fund sales growth.
Competitors
(HP and IBM) claim that they are taking share away from Sun in the
UNIX market and moving many customers to less expensive Linux and
Windows platforms. Sun,
in fact, now has a much more active Linux strategy, hoping to
preserve some of this business for themselves.
A good deal of Sun’s attention has been going to initial
sales of N1 (what we call virtual computing and what Sun would call
provisioning and virtualization software) and their new price
packaging of Enterprise Java software for both servers and desktops.
Some of this is quite adventurous.
For example, Sun has recently announced that they will be
selling their StarOffice software at retail in Japan via distributor
SourceNext. It will be
sold both online and in stores, both for a $20 per year subscription
or for a $100 purchase price, as StarSuite7. Sun is hoping to sell
“millions” of copies, but we’d note that selling office
software is not so easy – and there is lots of competition.
In
the meantime, Microsoft has announced its first $10 Billion
quarters, with revenues and profits up.
The only potential fly in the ointment is a decline in
deferred revenue, indicating the possibility that long-term licenses
to corporate buyers of application licenses (for the Office Suite,
among others) might be slightly down. That wouldn’t be surprising, as IT management has been
spending very carefully – and is likely to continue to be
controlled about software spending this year.
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