Research 2.0

Wednesday, September 13, 2006

Sun has the "dot" wrong again...

Jonathan Schwartz rang the bell to open NASDAQ today and is holding their customer day in NYC today.

After six years of losing money post the "putting the dot in .com" era Sun is talking about how well all parts of the business are doing and that "all signs are pointing to the right." Despite that the company is not yet sure they will be profitable this fiscal year.

Last year at this time Schwartz stated that the profit opportunties from utility-style service-oriented computing from arrays of servers would be vastly better than what they were experiencing selling discrete servers. The suggestion was that gross margins would be 30% or higher.

Did he have a price point in mind? Yes, just $1/CPU hour. Since it was pulled out of the air we shouldn't be surprised when the actual price being charged by companies like Amazon today is $0.10/CPU hour.

Imagine what that does to your gross and net operating margin assumptions!

The bottom line is that Sun probably will be successful driving more units into the market at much lower prices and take some market share but still seems to have their head in the clouds (or sand) with respect to a profitable business model.