Bangalore: Despite holding $3 billion in cash, Sun Microsystems Inc. now has a market capitalization of just $2.58 billion (about Rs12,822.6 crore). This captures the struggle faced by the the world’s fourth largest maker of computer servers, despite having in its portfolio brands such as the Java technology platform, Solaris operating system, the UltraSPARC processors for its high-end servers and MySQL database management system.

Bright spot: Anil Valluri says India continues to be a good market for the world’s fourth largest manufacturer of computer servers.

In an interview, Valluri outlined problems Sun was facing and how India continues to be a good market for the company. Edited excerpts:

Your market cap today is lower than the cash you have in hand. What is happening?

If you look at the portfolio of Sun’s offerings in the marketplace, traditionally it has (been) a lot on the enterprise side with high-end servers and storage. That has been our strength. With market dynamics undergoing a change, the high-end market has virtually been depleted, not just for us but for everybody.

Also See Declining Market Share (Graphic)

Sun has been a strong supplier in the telecom, banking and large retail segment. The way things have panned out is that a lot of high-end systems market has shrunk and precisely in the banking, telecom and retail segments, which have been our areas of strength. Not in India so much but telecom abroad is almost stagnant. So this has had a direct bearing on Sun’s growth and market share. However, we have had a lot of new customers, whether it is Facebook, Google, Second Life... (But) the revenues new customers dialled in haven’t exactly compensated for the revenues that some customers dialled out.

In servers, storage, software and services, what surprised me was you actually have shrunk in software and services. Only storage has grown.

No. I wouldn’t agree with that... It has grown... We have had strong focus on services in the last one, one-and-a-half years.

But that is what the latest numbers reflect...

I think we should not look at things only on the basis of a few quarters. Our services strategy is not based on people numbers, rather we do services around technology. Like professional services, managed services. I agree that it has not compensated for (the fall in revenues from other segments). Again on software...some of the work we have done around MySQL, Solaris, Java stack, we have not been able to monetize at the speed we would have liked. There is tremendous number of downloads—11.5 million plus of MySQL downloads, 12 million-odd open Solaris downloads. There is tremendous interest. We have to think of upselling services to those who download our free software, cross-sell additional services and try and sell some licences for our other offerings. Turning on the switch between the downloads and increasing our revenue is the key.

If you are not able to monetize something, why be bullheaded? Why not focus on just other areas?

The counter-argument to this is, do you want to say, I don’t want to be open source, that I want to be closed and proprietary? In the industry landscape, only Microsoft apart from Sun has the ability to impact a developer when he starts developing a code. You want to develop, say an ERP (enterprise resource planning) or a customer application, Sun is one of the two choices the developer has. Can an HP, a Dell or an IBM claim to be in that position? Sun is uniquely placed. In India alone, there are 75,000 MySQL users. They are all not mickey mouse names, they are all large enterprises. But can Sun do more to link user base and increase revenues? Absolutely.

But given Sun’s position then, would one such player like an IBM or a Fujitisu acquire you?

I am not the right person to comment but in the past 10 years, has there been anytime when there hasn’t been speculation about such moves? Right from Apple, Dell, HP, IBM to Fujitisu. There are cogent arguments made for such an (Sun) acquisition to be made. Except for Jonathan (Schwartz) and Scott (McNealy), everybody seems to have agreed (laughs).

Are such acquisition speculations impacting you in the marketplace? Do customers ask you about this?

The irony of the matter is apart from media and some analysts, no customer says this. They are very happy that Sun exists, that there is competition in the marketplace and the value we provide. We continue to spend close to $1.8 billion in R&D (research and development). Some have said we should cut that as it would add to our bottom line. We haven’t done that. Unlike, say a Dell, we are not into supply chain optimization. We want to innovate and grow.

What about Sun India?

In the top end of the Unix server market, we are the market leaders in India. Storage and services have been growing well. We are growing our x86 (server) share. Telecom, banking and government sectors continue to grow and do well in the Indian market.

Sun India also has the largest development centre for the company outside the United States. We work on a collaborative engineering model. Sun Application server version 6.0, for instance, was largely developed out of India development centre.

Graphics by Ahmed Raza Khan / Mint