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Sun partners, customers concerned as Sun profits fall

Colin Steele, Executive Editor
Sun Microsystems' plunging profits are raising questions among customers and leading some Sun partners to do more business with competitors.

Sun profits last quarter were down 73% from a year ago -- even lower than expectations -- and the company said it does not expect to make a profit in the current quarter, which ends in September. The company's profit last quarter was $88 million, or 11 cents a share -- down from $329 million, or 36 cents a share, in the same quarter a year prior.

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Sun's stock price falling, although it has rebounded since the July 31 announcement.

"It is a concern," said one California-based Sun partner who did not wish to be identified. "We do a lot of business with Sun, but we also have reseller agreements with HP and IBM. So, if customers are worried enough about Sun, we can move them. For us it's an issue because Sun has been our bread and butter on the hardware side, but that is starting to shift."

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At Advanced Systems Group, a Denver, Colo.-based Sun partner, customers are asking how the news about Sun's profits will affect them and the products they rely on for their businesses.

"It's not a real inspiring, positive type of thing your customers would like to see," CEO John Murphy said.

Advanced Systems Group's Sun business is still profitable, but the vendor's financial issues have caused some problems, Murphy said.

"It's certainly something we've battled for a while," he added. "I haven't had a real strong run or sustained growth in several years."

But other Sun partners are still having success. At Consonus Technologies Inc. in Cary, N.C., Sun business has grown 10% to 15% year over year, CEO Mike Shook said. Consonus sells a wide range of Sun products into companies ranging from small businesses to large enterprises, which helps that growth stay consistent, he said.

"If one segment's slow, another segment's strong," Shook added.

The U.S. economic downturn and sagging sales of high-end servers are to blame for Sun's profits falling, the company said. Sun makes 40% of its sales in the United States, according to the Associated Press.

Shook agreed that the domestic economy is the main reason for Sun's financial downturn.

"It's a tough period," he said. "It's a real tough time for everybody."

Shook's customers realize that, and so they're not asking what's wrong with Sun.

"We have a lot of long-term Sun customers, and they haven't asked that question," he said. "If Sun was an anomaly, they'd focus on it."

Another problem is that Sun has pushed hardware, software and services, and the company may not be able to support such a broad range of offerings, Murphy said. As the company makes more customer-facing cuts, it will create more opportunities for channel partners -- but Sun still needs to support those partners. Murphy said he'd like to see more demand generation and marketing campaigns for Sun partners.

"That's never been a strong suit of Sun," he said.

That could be changing with Sun's new Partner First program, which will drive sales for all Sun customers -- except its 300 largest national accounts -- through the channel. That strategy should help Sun reach customers more effectively and become more profitable, Shook said.

"They're more and more realizing that they've got to double down on the partner community," he said.

Senior news editor Barbara Darrow contributed to this report.


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