Sun's Financial And Business Strategy
After the bubble burst in 2002, Sun¡¯s revenue dropped dramatically, but their expenditure did not drop much causing losses in its income. Besides, accounts receivable days increased to 83.2 days increasing cash cycle to 69 days. We noted that the accounts receivable days had been approximately 20 days longer than accounts payable days; however, its constant effort to lower the accounts receivable days and to increase the accounts payable days started to show the result in 2006 being nearly same.
Its key strategy is the innovation; thus, R&D is very important for Sun. Sun tries to maintain R&D cost to be 15% or bigger of their revenue. Despite of the losses, Sun kept the R&D expenditure at the same level. To recover the decline in sales, Sun tried to lower SG&A every year and it seems effective. If we look at the years from 2003 to 2005, when their growth rate was declining by 8.5%, 2.2%, and 1.0% respectively, their SG&A cost declined by 18%, 5%, and 13%. In 2006, SG&A expense increased by $1.1 billions, but it was due to the expenses involved with the acquisition of StorageTek and SeeBeyond. Although Sun¡¯s net loss increased to $166 millions, but the total revenue, gross profit, accounts receivables, inventories, and cash are increasing. Sun also started generating cash from the investments in marketable and equity securities in 2006. These data are positive signs for future growth of Sun.
Sun is focusing on the open-source strategy for pricing and licensing strategy. Recently it announced to change its Java technology¡¯s license to General Public License except its core Java Standard Edition. Sun believes that by going open-source will bring more revenue for their software segment, but it needs to decide on its pricing strategy involving the open-source and the non-open-source software.
Bibiliography
Sun Microsystems, Inc. Form 10-K. June 30, 2006. Thomson Research. Thomson Financial. Babson College Horn Lib.,...
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