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We released our official earnings on Thursday last week, after pre-announcing the news one week prior alongside the announcement of our intent to acquire MySQL.
Our second quarter financial announcement came down to this: we doubled our profitability compared to a year ago, with $260 million in net income on revenues of $3.6 billion, while generating $336 million in cash from operations. We also repurchased $750 million of our own shares within the quarter, and reaffirmed our guidance for the full year of low to mid single digit revenue growth, and at least 8% operating profit for Q4 (excluding any acquisition charges).
From a financial perspective, with the glass half empty, total revenues were up only slightly (just over 1% vs. a year ago). This was partly due to changes in how we do business with our resellers and channel partners – we’ll be reporting revenue when there’s a sale to an end user customer, not when we’ve fulfilled an order from a business partner that sells to end users. (This makes us more transparent, too.)
Those changes took a few percentage points of revenue growth off the top line, and were one reason for the disparity between our bookings growth of 7%+ (bookings are orders for delivery within the next six months) and our revenue (orders fulfilled/installed within the quarter). With the glass half full, this generated a very healthy “book to bill” ratio, which investors look to for insight into future performance. Our total deferred revenues (products and services) also ballooned considerably, growing 24% year over year, to almost $2.7 billion. A very healthy increase.
What were some of the strategic highlights within the quarter?
Topping the list was the interest in Sun xVM. xVM is our free, open source virtualization platform, which we unveiled at Oracle Open World, alongside our management platform, xVM Ops Center. xVM will virtualize Windows, Linux or Solaris, on either Dell, HP, IBM or Sun hardware. We’ve seen broad interest from across the world, especially from customers that want to avoid putting a proprietary virtualization technology at the base of large scale open source datacenters (“why go back?” one said to me). Interest in our virtualization story (from xVM to Solaris containers) expands to every industry, and nearly every customer – it’s just about the number one item on the agenda.
Next on the list was signing a Solaris OEM deal with Dell, through which they’ve endorsed and will support Solaris across their server and blade platforms. This was a very big deal for us – an endorsement from the volume leader in PC’s and commodity infrastructure matters to our customers. Michael joined me on stage, and politely invited me to join Dell’s “Regeneration” (an offer I gladly accepted in exchange for a t-shirt). Dell joins IBM and Intel as Solaris OEM partners. Personally, I’d love to add Hewlett Packard to the list of partners our customers can rely upon for Solaris support.
We saw double digit growth in emerging economies, from India, China, Latin America, to portions of Eastern Europe and the Middle East. We saw booming growth in our UltraSPARC T2 Niagara platform, generating approximately $285 million in billings, 100% higher than a year ago. 100% growth! Why’s it growing so fast? A focus on eco-efficiency, on outright raw performance, integrated (ie., free) virtualization and crypto support – we see opportunity emerging every day. With the acceptance of SPARC and Solaris 10 as open platforms driving new conversations and opportunity (with our existing, and new customers – if you’d like to try a Niagara 2 (officially, a T5120 or T5220) system for free, click here).
Our x64 business was relatively flat within the quarter – which was a low point, certainly. But we’re just now introducing our new Intel offerings, and starting to build out our blade offerings. So I’ve got more confidence heading into the back half of the year, and with a bulked up product line that continues to expand and evolve.
We also saw growth on the very highest end systems we jointly build with Fujitsu. We’re seeing those systems perform at or above our internal benchmark estimates, and we couldn’t be happier with the strategic progress Sun and Fujitsu are making as partners. Speaking of partner relationships, we saw good growth in our Hitachi high end storage offerings, alongside growth in our core tape business. As predicted, we’re seeing growing interest in tape as an archive platform among web companies that must preserve very large pools of data (user generated photographs and movies, eg.) for long periods of time. Where “large pools” are tens of petabytes, growing to hundreds). Alongside growth in our enterprise business, we also saw good growth from our Services business.
What’s my view on the economy? Having spent my undergraduate years studying the dismal science, I can say with complete confidence, “no one knows with certainty.” What do I hear from customers? That they’re increasingly turning to technology to drive efficiency, automation, and growth. And we’re a central figure in that conversation, far more central than a year ago.
In addition, we just held an event with 150 or so of our business partners from across the world – evenly split across Europe, the Americas and the Asia Pacific region. And what did I hear from those partners? That’s confidential, of course, but there’s a reason we’re all holding champagne glasses. We’re hoping to make a habit of toasting success.
To the partners that joined us at the event – thank you for the partnership. We are committed to growing our opportunity, and the value of our relationships. There’s a world of opportunity in front of us, and we’re looking forward to capturing it together.
Safe Harbor Statement
Jonathan’s blog contains forward-looking statements regarding the future results and performance of Sun including statements with respect to Sun’s guidance for revenue growth for FY08 and operating profit for Q408, Sun’s strategy and business opportunities and expectations regarding our x64 business. These forward-looking statements involve risks and uncertainties and actual results could differ materially from those predicted in any such forward-looking statements. Factors that could cause actual results to differ materially from those contained in such forward-looking statements include: risks associated with developing, designing, manufacturing and distributing new products; lack of success in technological advancements; pricing pressures; lack of customer acceptance of new products; the possibility of errors or defects in new products; competition; adverse business conditions; failure to retain key employees; the cancellation or delay of projects; our reliance on single-source suppliers; risks associated with our ability to purchase a sufficient amount of components to meet demand; inventory risks; and delays in product development or customer acceptance and implementation of new products and technologies. Please also refer to Sun’s periodic reports that are filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2007 and its Quarterly Reports on Form 10-Q for the fiscal quarter ended September 30, 2007. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements. If you’ve read this far, you need more outside interests.