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Dell's global diversity drives a comeback, which Sun is keen to mimic. Plus, Novell earns its crust from open source and CA looks back on track

As spending in the US grinds to a halt and the value of the dollar continues its gradual decline against the bulk of the world’s major currencies, those IT vendors that have penetrated countries away from their US home market are counting their blessings

For Dell, the once-market leading PC and server manufacturer that has underperformed in the past two years, its large global footprint is proving to be a saving grace.

In August 2008, the company revealed (after a delay) its financial results for the first quarter of the financial year, ending 2 May: it posted revenues of $16.1 billion, up 9% from the year-ago quarter.

The company was still in the doldrums 12 months ago, but compared to its prior performance and the IT market as a whole, this revenue boost is exactly the kind of solid revival Dell investors have been holding their breath for.

There was no doubt as to the cause for this return to form. “In the so-called BRIC [Brazil, Russia, India, China] countries, where over 40% of the industry growth will come from in the next five years, we outperformed all major competitors across all product categories,” explained outgoing Dell CFO Don Carty.

The company nevertheless did manage an 11% growth in revenues derived from the US market, “when the market was essentially flat,” he added.

One company hoping to mimic Dell’s success at diversifying its global footprint is Sun Microsystems. Certainly, the company needs to do something to improve its fortunes: during its fourth quarter of fiscal 2008 Sun generated revenues of $3.78 billion, down 1.4% from the same quarter in the previous year.

Even more disappointing was the company’s profitability. Net income for its most recent quarter was $88 million, a steep drop from the previous year’s $329 million.

It was the US market that let Sun down. Revenue growth in ‘emerging’ markets was strong – 20% and 30% in Brazil and China respectively. But, CEO Jonathan Schwartz lamented, “growth around the world was entirely offset by declines in the US”.

“There’s no question the challenging US macro environment has hindered our ability to grow the top line,” he added.

The company’s CFO Mike Lehman reassured investment analysts that while Sun is suffering from its historical reliance on the US market, it was doing its best to diversify. But that is no easy task, he added.

“When you’ve got a $100 million customer that is not going to be growing its IT purchases, but instead they’re taking it down 80%, that’s a lot of new customer acquisitions to make up for,” Lehman said on a conference call with analysts.

An important product for Sun as it expands its global reach will be MySQL, the open source database that it acquired in January 2008. It is, according to Schwartz, the fastest growing database product in the market, and is gaining particular traction in Asia.

“We see extraordinary open source adoption in China, especially of MySQL, across their academic environments,” he said. “As we’ve seen in India, individuals [from these universities] end up graduating, end up starting companies and end up really influencing how IT architectures are rolling out.”

Whether analysts were reassured that a 26-year-old company was pinning its hopes for global domination on a free product it bought nine months ago was not clear.

Open goal

But it is not just the Far East that is hungry for open source software, Schwartz added. “The ongoing endorsements from customers tell us that open source will be their path forward in enterprise computing,” he explained.

Enterprise systems and software vendor Novell is also banking on the open source revolution.

That company reported revenues of $245.2 million for its third quarter of the year, up a modest 4% from the year-before quarter tally of $237 million. Losses widened from $3.7 million to $15.1 million.

Most of the revenue came from the company’s product sales, and the largest share of that derived from sales of its group collaboration software products. But the $92 million Novell earned from its Workgroup products was in fact down 1% from the previous year: all revenue growth was driven by smaller product groups.

The Identity and Access Management segment, for example, took $34 million, up 22% year-on-year. And the Linux Platform Products division banked $31 million, up 30%. The Linux market is growing at 17% annually according to IDC, so Novell is ahead of the curve in this regard.

The company’s controversial pact with the archenemy of the open source software community, Microsoft, continued to pay dividends. Novell announced that the software giant had agreed to acquire a further $100 million-worth of licences – which allow its server management products to interoperate with Novell’s OpenSuse Linux operating system – adding to an existing $240 million agreement.

Also reporting in August was CA, the once-troubled systems and software vendor which, like Dell, appears to be out of the woods.

The company’s revenues rose by 6% to $1.09 billion but, crucially, costs relating to the company’s historical and painful years of restructuring were a mere $4 million, having been in the tens of millions in previous periods. That helped net income jump from $129 million to $200 million year on year, suggesting that customers have finally forgiven CA’s past.

Further reading

FINANCIAL REPORT AUGUST 2008
Decapitation spree hits IT sector
AMD and Alcatel-Lucent wave farewell to top brass after disastrous results, while VMware's new CEO rings that changes

FINANCIAL REPORT JULY 2008
Accenture's battle of many fronts
Global consultancy warns of coming competition from emerging economies. Plus, Oracle sees profit in consolidation, not software-as-a-service

FINANCIAL REPORT JUNE 2008
Overseas success for US IT giants
As US companies turn to the emerging economies to drive growth, in Europe Germany is providing interesting new opportunities, while France and the UK remain challenging markets

FINANCIAL REPORT MAY 2008
Profits squeezed in tech sector
SAP and EMC see profits decline. Meanwhile, Indian IT outsources receive a one year exension on their tax holiday