This week saw Sun’s final Q3 Sun’s earnings announcement and an unusual silence from the sometimes bumptious Jonathan Schwartz. It also marked one year since he lost credibility on wall-street in the surprise whiff of a Q3 last year. Instead of rehashing a year of credibility free fall  I want to take a step back and offer an Angle on why: poor portfolio management.

The coming data-center wars emanate from the major IT players changing view of their product portfolio’s growth prospects.  It will be a hot space to watch.

When You Wish Upon a Cash Cow

Growing revenue and earnings in a big company is an abstract goal, the bigger and more diverse the portfolio the harder it is to break the mission down into discreet daily tasks. Jonathan’s approach to managing the broad portfolio of Sun products was to classify the large enterprise UNIX install base as a BCG ‘cash cow,’ thus allowing him to focus on growing new software based ‘stars’. As recently as January of 2008 Sun’s executive team were speaking about their customer’s purchase of large UNIX systems as ‘non-discretionary.’

Sun announced its two primary compute growth areas would be Web 2.0, and HPC , neither of them driven by UNIX products.  Through the additional promotion of Open Solaris and the acquisition of MySQL the remaining management, PR, corporate goaling, etc cycles were all focused on Software and Infrastructure 2.0 projects. The world’s largest UNIX company wasn’t focusing on UNIX? It might have been a reasonable course if  the ‘non-discretionary’ theory was right. When it was wrong Sun lost 8pts of gross margin in a single quarter when high end sales collapsed.

Jonathan wanted to be the hip CEO of a hot software company. There isn’t much glory for a new young CEO in saying "I managed to reduce risks to our largest and most profitable revenue stream." For its part Suns’ board wanted to remain a broadly influential A-Lister who with an ambitious growth agenda.

(CEO focus has power, and Sun’s software division grew 20% year over year in Q3 even amidst the economic downturn.)

Oracle’s Strategy Reversal

Oracle’s purchase of Sun is about increasing the competitiveness of its core assets. Without serious attention Sun’s enterprise systems drifted from borderline cash cows  into the dangerous ‘dog’ quadrant.  Larry realizes just how much damn money he can make by sticking together a  UNIX system with a business application stack, saying:

"Completely integrated systems should be even more popular and extremely profitable."

By modifying Oracle’s license terms to be more compatible with Sun’s MultiCore technologies he is also uniquely equipped to change the economics vs. IBM’s pSeries. Sun has been loosing new Oracle installations for years due to prohibitive core based Oracle fees (IBM uses fewer cores).

By focusing from the get-go on enterprise application workloads Oracle is reversing many of Jonathan’s big Hail Mary’s, especially cloud computing and open-source software. Sun’s cloud compute service will soon be dead. Larry doesn’t have any psychological need to be hip–ridiculously rich suits him better.

But don’t question Jonathan’s efficacy as a hype machine …observe how many of the PR soaked Internet masses thought Oracle bought Sun to help with its cloud strategy.

Beware: Cisco, eBay, Google
John Furrier’s  recent post details the partner consequences of Cisco’s foray into the high growth blade market.  Cisco’s believes its core routing and switching products are corporate standards allowing them to safely diversify for growth. This may be true; longer term, after systems partner revolt, it may not be true. Mapping technology products to the matrix is a big league game; it subsequently dictates where the CEO experts scarce time, money and attention.

Google may seem invincible now but time wears on the growth and batting average of big companies. Could they face a serious challenge to their ‘star’ search business while they are busy diversifying and talking up a huge swath of new initiatives? Ebay was out talking up Skype while their core marketplace business began to decline.

Managing the BCG matrix at technology companies is a fine art.