In the Canadian market, Sun Microsystems Corp. plans to weather the economic storm by taking advantage of opportunities on a “targeted basis,” like the health-care sector, where it already has large contract signings with various customers, according to one executive.
There are many initiatives across Canada’s health-care sector in the areas of electronic health records, provincial lab information and diagnostic imaging, and Sun has been “very active in this space,” having amassed commitments from customers to health care contracts over time, said Andy Canham, president of Sun Microsystems of Canada Inc.
Thin client computing, in particular, has garnered strong interest in health care, driven by security needs, he said.
However, those health-care contracts contribute to growing the company’s “deferred revenue,” said Canham, in that “it would be an even more positive story” if Sun’s success could also be measured by the value of these contracts.
Canham said Sun in Canada is expecting to complete the third quarter, on March 31, “actually growing our revenue year over year.”
Contributing to that growth is the “good execution” of x86 servers in Canada, which is tallied at double the global market share, said Canham.
The downside, however, is that in tough economic times, customers tend to want to consolidate servers on smaller, cheaper platforms to reap better manageability and a lower footprint, said Canham. While there is still ample spending in that market, he said, “you can see where that one plays out over time. It’s a difficult place to grow.”
Sun must therefore continue to serve those customers well, said Canham, while taking advantage of high-growth areas. Those markets include open storage, Java, x64 servers, and MySQL, he said, while the company’s more traditional offerings like mainframe tape and classic disk storage have suffered “a decline in revenue over time.”
Sun has seen a nominal increase in revenues through fiscal years 2004 to 2008 due both to organic and inorganic growth, said Canham, but acknowledged the company is “under lots of stress right now, as you might well imagine, in the market that we’re currently selling in.”
In November, Sun announced that, as part of a restructuring plan, it would lay off up to 18 per cent of its workforce, between 5,000 and 6,000 employees in order to save $700 million to $800 million a year.
But Canham believes that challenges like tough economic times present opportunities for the investments Sun has made and the technologies it has put to market, and that the “right differentiation in the marketplace and the right disruptive technologies” can be profitable for Sun and its customers. Currently, Sun is spending nearly 13 per cent of its revenue on research and development, and that figure, in the past, has gone as high as 16 to 17 per cent, said Canham.
“We are not counting on a rebound [of the economy] anytime soon,” he said. “But we definitely want to be positioned through that rebound to already be in a position of having improved our share.”
Open source software remains at the centre of Sun’s strategy, said Canham. The company reaps revenue from customers of open source technology who then want to pay for support contracts, or enter into professional services agreements with Sun (another growing area of the business). Sun also plans to offer add-on components to make open source technologies work even better, he said.
That approach will spread Sun’s open source offerings, he said, so the company can monetize it over time.
Habeel Gazi, research analyst with London, Ont.-based Info-Tech Research Group Ltd., said that Sun does have strong financials and “strong products that differentiate it in very solid ways. The only problem is converting that to dollar amounts that shareholders are expecting.”
While Sun has products that have garnered ample attention in the market, like its 7000 Series and Sun Fire Storage arrays, Gazi said other offerings like those on the software side “don’t see the same amount of return on their investments compared to their competitors that don’t have much of a focus on the open source community.”
Perhaps the difficulty is finding a balance between helping the “small guy and trying to grow like a big guy,” said Gazi, referring to Sun’s open source initiatives.
Sun has put a lot of effort and money into building communities like that of Java and open source, but, said Gazi, it has yet to convert the strength of its strong developer following into something tangible.
That said, Gazi thinks Sun’s open source investment will yield plenty in current economic times as customers’ need to cut costs make open source a very viable option. “It would be disappointing if Sun did not really translate this opportunity into the springboard they’ve been looking for.”