Schwartz says Solaris is the key to Sun's growth

The key to Sun's success going forward is increased adoption of its Solaris 10 operating system, company CEO Jonathan Schwartz said Tuesday.

Sun had 7 million free downloads of Solaris in recent months, and 70 percent of those downloading it have non-Sun hardware in their IT infrastructure, Schwartz said at the Morgan Stanley Technology Conference this week in San Francisco.

If IT people are running Solaris on hardware from IBM, HP, and Dell, they can be sold Sun hardware to replace those other brands. "If your OS is in front of a customer, you're now given permission to sell everything you've got in your portfolio," Schwartz said.

Sun's servers and storage appliances are optimized to run on Solaris, though they can also run on the Linux OS.

Sun is approaching the first anniversary of a restructuring plan announced by Schwartz after he took over from Scott McNealy, who remains chairman. Sun has eliminated 4,000 jobs at the company over the last year to reduce costs and there may be more workforce reductions ahead, but only through attrition, Schwartz said. The company currently has about 38,000 employees worldwide.

Sun has an opportunity to grow as data centers continue to evolve, Schwartz said. Already, the number of rack-mounted servers has surpassed the number of tower servers sold, and blade servers are on track to outsell rack servers as data centers continue to consolidate.

"Why do we even bother with racks?" Schwartz asked during an interview before a roomful of analysts. "Racks are optimized for people to interact with infrastructure. But if you talk to any IT administrator, the last thing they want in their data center is a person because they try to be helpful, but they bend pins and kick plugs and do all kinds of bad things.

"The long-term evolution of this marketplace will see data centers emerge in a standardized form factor at large scale," he said.

Sun is planning to serve that market with its Project Blackbox, a data center that is installed in a 20-foot shipping container, delivered to a customer and operated from the container. It is scheduled to begin shipping later this year.

In its first profitable quarter in more than a year, Sun posted net income of $126 million, or $0.03 per share, on a 7 percent gain in revenue to $3.56 billion, in its fiscal 2007 second quarter, which ended Dec. 31, 2006.

Analysts, including those at firms besides Morgan Stanley, forecast Sun to earn $0.01 a share in the current quarter on $3.42 billion in revenue. For fiscal 2007, they estimate Sun will earn $0.10 a share on revenue of $14.88 billion, according to an average of analyst estimates from Thomson Financial.

In recent months, Sun has begun again to use Intel chips in its hardware. Sun also announced a $700 million investment in the company by KKR Private Equity Investors, the publicly traded fund of the private equity firm Kohlberg Kravis Roberts & Co. KKR will also nominate a director to Sun's board. KKR's investment will provide Sun the opportunity to market to all the other firms in which KKR invests, Schwartz said.