The Santa Clara, California-based systems company has always been wary about revealing how much of its revenue comes from software, insisting that it is impossible to break out from infrastructure systems sales that also include servers, storage and services.
The software financial figures will therefore not be GAAP-compliant, the company warned, but will give investors a sense of how significant its Java-based software business is in driving revenue and growth.
The big issue for us is that a big proportion of the value of our software business is caught up in service contracts of infrastructure sold to a customer, Schwartz told the company’s financial analyst meeting this week.
If you look at just the basic performance indicators in the company and you try to assess some kind of value for Thumper, or Niagara 2, or a 25K [Sun Fire Server], or a service contract for a big data center, you can back that information into a number that says our software business is over a $1bn, he added.
That’s not a GAAP number, but at $1bn and growing at the rate that we’ve seen, which is double digits over the past year, that’s a pretty interesting driver of growth and driver of value for Sun, he added. What we’re trying to do is use a methodology that we can feel good about and stand behind without the artifice of intra-company pricing.
Sun’s CFO, Michael Lehman, added that the company would begin to provide guidance for its software business with its financial results, but cautioned that due to the fact that Sun did not break out the figures with customers, it would not be figure that auditors would be able to sign off on.
We can put out a number there, and we will put out a number later this fiscal year that gives a licensing summary and a… value of the software and services contracts, and we will begin to have a message about what that means, but it isn’t one that we can support, he said.
Lehman also cautioned that as the company increasing releases its software under open source licenses with subscription revenue, the figures might actually see decreasing software revenue, with the support subscriptions adding to services revenue.
Looking at the pure software license component alone, there will be a license aspect that’s going away because some products that had a license two or three years ago aren’t going to have that, he said. That’s okay for us.
Sun recently changed its stock ticker symbol from SUNW to JAVA in order to increase its profile among Wall Street analysts, leading to speculation that the company will increase its focus on its Java-based software in the future.
The latest change indicates that the company is also trying to give investors a better understanding of the value of its software business and how operates, in particular how the subscription model means that the company gains support revenue from giving away its Java-based software.
Schwartz also said that the company would look to grow the software business through acquisitions. When you look at the growth scenarios going forward, not all of that’s going to be organic, he said. I think you should expect an increase in the pace and the focus on inorganic growth. That’s certainly an area we think is open to us.
