Sun data storage strategy still puzzling to analysts

After one earnings call and an analyst call two days later, storage analysts are still trying to figure out whether Sun Microsystems has a data storage system strategy that can turn around its 10 percent revenue decline.

Sun Microsystems Inc. will introduce new products for the low end storage market including a new linear tape open (LTO) offering in its fiscal year 2008.

The move is a reaction to poor sales of data storage system products that Sun sells to the low end storage market, which contributed to the company's dismal storage revenue performance in its fourth quarter.

The company also suffered when it failed to introduce a next generation LTO product while companies like IBM and Dell introduced theirs, leaving Sun in an uncompetitive position.

Sun executive Bret Schaefer, vice president, investor relations outlined Sun's storage plans during a call on Wednesday as he tried to put the best face forward on Sun's dismal fourth quarter storage earnings results.

Sun's data storage system product revenue for Q407 was $639 million -- a decrease of 10.4% year over year. Schaefer said the decline was the result of weakness in low end tape and disk sales and declared that Sun had to turn its storage business to a more profitable position moving forward.

Still, some storage analysts were troubled that after a 45 minute call designed in part to shed some light on Sun's data storage system strategy, there was no clarification on the company's storage strategy.

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"The Sun storage strategy for last year did not work," said John Webster, storage analyst at Illuminata Inc. "I have a vague notion of where they want to expand some presence in certain segments of the market, but in terms of overall strategy, I did not hear anything different and that is cause for concern."

Gartner analyst Roger Cox said Sun's technology in tape drive and tape automation is as good as anyone else's in the market, and the company can meet the needs of large customers by reselling Hitachi Data Systems products.

Cox also said Sun's midrange data storage system products have done well. However, there is still a perception problem among storage customers, and a percieved go to market weakness in Sun's storage strategy.

"The biggest challenge that Sun has in the storage space is whether clients seriously believe they are really in the storage business," said Cox. "It is disappointing that thier revenue is down 10%, and I think it really reflects poor execution on the part of the people running the storage program."

Sun executives said recently that the archive and tape side of the storage business, which is the result of the StorageTek acquisition, continues to do well, as does their midrange products.

Additionally, during the July 30 Q407 earnings call Jonathan Schwartz, Sun's chief executive officer and president blamed some of Sun's storage woes on OEM relationships which did not execute well in the quarter.

"We've got an OEM business; we've got a low end disk business. Frankly the OEM offerings weren't as strong as we would like. We know we've got some work to do there," Schwartz said.

Sun's OEM relationship with LSI Corp. for the low end data storage system market includes the Sun StorageTek 2530 array and the 2540. In midrange disk, where the products are selling well, the products include the Sun StorageTek 6540 and 6140.

Schaefer said Sun expects to correct the problem and boost sales by the end of their FYQ2. But details of how to turn the tide on low end disk products sales were murky at best.

Nevertheless, Trainer is optimistic that Sun is focusing on a more streamlined storage offering -- one that increases Sun's storage footprint within the Sun platform. He also said Sun partners can tap into new and growing opportunities.

"For value added resellers it means that there's an opportunity to work with Sun on incentives to sell the low end storage, both tape and disk, and also to work with Sun on Sun Fire X4500, otherwise know as Thumper, to help them grow the business," Trainer said.

Schaefer reiterated much of what Schwartz said earlier in the week, including the success of Thumper, which Sun shipped nearly 20 Petabytes in Q4 and is now on an annual billing run rate of $100 million. The Thumper, a server-storage hybrid, is viewed by Sun executives as the foundation for a new line of data warehousing appliance based on general purpose computing and open source operating systems.

Still, Gartner's Cox said Sun should not envision the Thumper as an all encompassing example of what a data storage system will look like or what customers will clamor for.

"If Sun is going to go down the road of saying that products like the Thumper are the wave of the future then I don't think they get it," Cox said.

Trainer describes the Thumper as a 'wild card,' saying that he can understand solidifying on the Hitachi products for the high end, and solidifying with LSI on themidrange and low end for disk storage, but said the Thumper is still finding its place in the market.

"The Thumper is not NAS, is not CAS, it's a disk array plus -- it's not a straightforward offering. The Thumper is unique in that it's just hardware. It needs some other environment to actually make it sing, like ZFS or Polyserve. If it's positioned properly by Sun it could be very successful," Trainer said.

On Monday's Q4 earnings call, Schwartz said Sun is also hanging its hat on its virtualization strategy. In Q4 Sun began to see the impact of its virtualization investments with support for Solaris 10 containers. As of last month, support for bundled virtualization, which gives customers the ability to buy fewer but more richly configured systems and storage on both Sparc and x64 platforms, was on the rise.

"We clearly see Solaris and its core virtualization properties as opening a world of new opportunity beyond computing," Schwartz said.

About the author:Let us know what you think about this story; email: Nicole Lewis, Senior News Writer.

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