Coop's Corner

Steve Jobs may be the best in the business at mesmerizing a crowd, but Jonathan Schwartz of Sun Microsystems rates consideration as a very serious No. 2.

When it comes to pitching his company, Schwartz is the sort of articulate and passionate CEO that boards covet in these extra-PR-conscious times. Is he all that good? Put to the test, I think he'd have decent odds of convincing a zebra that stripes were yesterday's fashion.

Jonathan Schwartz: What does he know that the others don't?

(Credit: Stephen Shankland, CNET News)

But while Schwartz is steadfast about Sun's ability to achieve great things, the big difference is that Jobs sells cool stuff that its customers consider to be so much better than that offered by the competition. At Sun, well, it remains a slog.

The company just last week announced it had lost $209 million in its fiscal second quarter on an 11 percent drop in sales. (If you subtract the special charges, Sun actually would have finished with a 15-cent-per-share profit.)

The earnings report came as a mild upside surprise on Wall Street, which had feared worse after the financial sector's meltdown during the fourth quarter of last year. Still, sales remain headed in the wrong direction as the company has now suffered year-to-year declines in each of its last four quarters. It doesn't help that Sun is getting squeezed from opposite directions with IBM and Hewlett-Packard at the high end of the server business and Dell (and HP again) on the low end.

So I was especially curious how Schwartz would deal with current events when he presented a status update on Sun's business Monday morning. What can I say, but the guy still has the touch.

This was a textbook Jonathan "special" where you come away dutifully impressed at his ability to peer through the clouds. As his Schwartz's wont, he liberally dropped mentions of (unnamed) bigwigs at this or that (unnamed) major "financial institution" assuring him that they understood the importance of investing in (presumably, Sun) technology in order to stay ahead.

And there was no shortage of telling anecdotes. At one point, Schwartz related how a "leading" technology decision maker with one of the world's largest financial institutions shared this morsel: Yes, it's reexamining what it spends. Who isn't? The more important intimation: this institution intends to accelerate spending in other areas where it thinks there will be opportunity.

All that was prelude to Schwartz's main argument that technology spending will figure as "a critical part" of the economy's recovery (whenever that might take place.)

What followed was a brilliant disquisition on the role of innovation during times of crisis and how "cloud (computing) was fast becoming the "one conversation people want to have across the world." (I thought it was Christian Bale but let's not quibble.) Schwartz's line of argument naturally fed into a scenario marked by sharp demand for more servers and storage, the two product areas which coincidentally pay the bills at Sun.

Truth be told, it was a compelling performance. I just wonder how long it's going to take before the story line ever jibes with facts on the ground. Panglossian optimism has its place, but Sun's CEO insists on painting a sunny picture that never quite takes shape as envisioned. Indeed, he's been painting the cloud computing picture for years now. Then come more losses, layoffs and let downs. Seems that it's been this way since the dot-com bubble burst.

I'm not arguing Sun's in any danger of going under. In fact, it can probably fare quite nicely as a (much) smaller, open-source software company. But that doesn't fit with Schwartz's vision for Sun. And while I am keeping my fingers crossed, the repair of the economy will take quite some time. So at what point do we declare his vision a pipe dream and just move on?

Sun Microsystems plans to introduce Flash-based servers and storage systems in early 2009, according to company sources.

This would build upon Sun's earlier embrace of flash in its ZFS storage platform. Sun officials have argued that Flash pushes down the total operational cost of storage, particularly when it comes to data or performance intensive applications. Earlier in the year, there had been speculation about a faster move to Flash before the end of 2008.

Sources say they expect performance gains of between 10 percent and 20 percent in the upcoming systems. An announcement is expected in the first quarter of next year.

"Certainly, there are lots of Web 2.0 customers out there who are trying to get performance gains so anything that pushes out their scale is going to be valuable," said one executive familiar with the plans.

Sun Chief Technology Officer Greg Papadopoulos told a gathering of analysts and reporters in brief welcoming remarks Tuesday evening that "Flash memory will be the catalyst...that leads to a rethinking of storage." He did not get more specific.

Earlier in the day, Sun disclosed that it had stopped accepting new customers for its Network.com pay-per-use utility service. Dave Douglas, senior vice president of cloud computing and developer platforms group, acknowledged that it had been slow going for the 2-year-old project.

"I think the model makes sense...it definitely (appealed to) a set of customers but not as big a set as we would have hoped," Douglas said.

Lew Tucker, who was hired in August to take over as vice president and CTO of Sun's Cloud Computing initiative, left the door open to a "retooled" Network.com sometime in the future.

In June 2005, long before most people ever heard of subprime, LIBOR, or credit default swaps, Sun Microsystems thought it was a grand idea to buy StorageTek for the princely sum of $4.1 billion. At the time, the thinking at Sun was to become more of a one-stop shop for its corporate clientele. On paper, at least, it sounded like a plausible idea.

But that was a veritable eternity ago. With the market's sudden meltdown in the last month, corporate spending--at least on Sun's products and service--has been hit especially hard. So it was that Sun warned this afternoon of a wider loss on lower revenue. The company said that it's going to lose 25 cents to 35 cents a share.

That figure includes a $60 million restructuring charge but not the potential goodwill impairment. Sales are expected to come in between $2.95 billion to $3.05 billion, as compared to $3.21 billion for the first quarter of fiscal 2008.

What really stands out in the warning is the paragraph devoted to a discussion of what largely was the StorageTek business. To wit:

Based on a combination of factors, including the current economic environment, Sun's operating results, and a sustained decline in Sun's market valuation, the company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value. As a result, Sun is currently conducting an interim goodwill impairment analysis to determine the required amount of the non-cash impairment charge, if any. As of September 28, 2008, prior to the impact of this potential non-cash impairment charge, Sun's total goodwill balance was $3.2 billion of which $1.8 billion relates to reporting units that may be impaired.

Sun also paid about $1 billion to buy MySQL in January. A spokeswoman said Sun will publish final numbers on October 30, when the company holds its quarterly earnings call.

At the time of the StorageTek acquisition, a Forrester analyst by the name of Frank Gillett had this to say:

"Buying a company that is primarily tape technology today doesn't look like an exciting play for a forward-thinking company like Sun....It appears like they have some strategic stuff in mind in the long run, but I don't think that this acquisition is being justified on yet-to-be-announced technology. In the short run (the logic) is an open question."

Pretty prescient.