Oracle Pushes Sun Systems Biz Toward Profits, Fires More People

Published: June 28, 2010

by Timothy Prickett Morgan

There are always a lot of ifs in life. Like, for instance, if the top brass of Sun Microsystems had made some of the changes that Oracle has done in the four months since acquiring Sun--but done them several years ago--then Sun would be positioned to ride up a recovery but would be still trying to figure out how to be a systems company. Oracle, as its most recent financial results show, may not succeed in the long run with its systems aspirations, but it has certainly made the most of Sun in a short time.

In Oracle's fourth quarter of fiscal 2010 ended May 31, the company posted $9.51 billion in revenues, up 39 percent thanks largely to Sun being on the books this time around and not a year ago, while net income came in at $2.36bn, up 25 percent.

Hardware systems--by which Oracle means servers, storage, switches, and related support for these products--accounted for $1.83 billion in revenues. Hardware was $1.23 billion of that, and the remaining $598 million came from support. Those figures are well below Sun's normal revenues from 2007 and 2008 and still lower than the levels Sun saw in 2009, but not as low as many might have been expecting. That hardware business provided Oracle with $406 million in operating profits, according to the company's financial reports, and other Sun products kicked in another $139 million, but after restructuring charges, writedowns of Sun assets, allocation of research and development expenses, SG&A expenses, the Sun business had an operating loss of $91 million in the quarter.

But Oracle co-president, Safra Catz, said once again, as she has said many times, that Oracle is on track to pull $1.5 billion in operating profits out of Sun in fiscal 2011, which started on June 1. (What Oracle was saying last year was that it could do this in the first 12 months of owning Sun, but no one seemed to notice the four-month slip in guidance, or care.) Catz said, once again, that Sun would contribute $2 billion in operating profits in the following year, which is now the target for fiscal 2012.

Oracle said that in the first quarter of fiscal 2011 it expected the Sun hardware business to account for at least $1 billion in revenues, and Larry Ellison, Oracle's chief executive officer who has been banging the Sun hardware drum since April 2009 when Oracle announced its $7.4 billion takeover of the struggling server and software maker, said that the pipeline for Oracle's Exadata V2 database appliances was approaching $1 billion for fiscal 2011.

Oracle's application business, which includes the JD Edwards ERP suites for the Power Systems i platform, was relatively weak in the quarter, with sales of $1.98 billion, up only 7 percent. Basically, if Oracle can get its hardware act together and put some decent Sparc and Xeon iron into the field (as I have written over at The Register, Oracle has spiked its Opteron-based servers but has not copped to it yet) and get into its third quarter, its hardware business could be roughly the same size as its application software business.

Weird, isn't it? I hadn't thought about it that way until now.

In fiscal Q4, database and middleware sales were the revenue engines, up 16 percent to $4.59 billion. Database and middleware sales in the Americas region spiked by 34 percent.

One of the ways Oracle is pushing profits is by slashing more employees from the Sun unit. In early June, Oracle told the Securities and Exchange Commission that it would be laying off more Sun employees, predominantly in Europe and Asia. Oracle's original restructuring plan for Sun called for $325 million in restructuring costs (including an unspecified number of workforce reductions), but now the company says it will spend an additional $675 million to $825 million in costs, of which $550 million to $650 million would be for layoffs. So now the total bill for the Sun restructuring is between $1 billion and $1.15 billion. Oracle may be bragging about hiring 2,000 sales people and doubling the Sun direct sales force, but it is firing many, many times more people that this. My guess is that since the Oracle deal was announced last April, somewhere between 7,500 and 10,000 people have lost their jobs, including this round of layoffs. How it is possible for a public company to not divulge this information precisely is beyond me.

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