Here's the problem: Microsoft and Intel, now looking for EVERY available opportunity to grow their domains, have SUN in their respective sights. While there was always some competition for sunw, Micosoft and Intel are now overtly targeting the bread and butter businesses of Sunw, i.e. the workstation and server markets. They're going to use the same high volume lower cost model that worked so well in PCs.
Intel has been spending big bucks designing servers to compete with Sunw. They are attempting to do with servers what they have done with PCs. That is, STANDARDIZE them. This will make them cheap and appealing to customers. Then they will take this server standard and start scaling it up the enterprise. They already have a nice 4 processor design and you can bet that this is just the start. Eventually, sunw will have to lower prices. Already, inroads are being made at the low end forcing, in essence, sunw to pursue the "high end graveyard" to borrow the astute terminology of ex SGI founder Jim Clark, who btw, left SGI at THE TOP.
The Wintel server business is consolidating and weaker, design rich companies are ending up in stronger hands. Tandem is now with Compaq. Netframe with Micron. ALR with Gateway. Dell is getting much stronger. HP is strong too.
Sunw now has defiantly set itself up as the WINTEL alternative, when it is plainly obvious that CUSOTMERS LOVE wintel products. Many of Sunw's feircest competitors have already recognized the Wintel threat and are HEDGING their bets. That IS PRUDENT BUSINESS practice. That is not happening at Sunw. Scott is not being prudent by hedging Sunw's bets. Eventually Sunw's server business will stick out like Apple's PCs do now. Nice but not STANDARD.
Sunw will eventually be further walled off and isolated at the high end, and increasingly face the Apple problem of selling to the "converted." The marginal customer will be a tough sell. Prices will eventually have to be dramatically lowered, first on the low end, then on the high. That will crash gross margins, which are unustainably high. Of course, this is the same fate that SGI and Apple are dealing with now. Will it happen overnight, No. But day by day, wall street will be measuring sunws progress more and more against the announcements of INTEL and Microsoft's enterprise strategy, and less against HP, SGI , DEC.
Sunw's Gross Margins are headed to the sub 40% level within 18 months. I say this not because I HATE sunw, but because this is the "rule of law" in the computer business. I recall ED Mcraken, a smart fellow, saying that SGI absolutely DEPENDED on high gross margins to execute their business model. Sunw has that same dependency. You can say that Sunw is not SGI and not APPLE. Go back and look at the 5 year charts people. These companies were once considered INVINCEABLE.
quote.yahoo.com
quote.yahoo.com
Oh. I almost forgot. Put a IMHO at the beginning of every sentence.
And I hope you noticed the eerie similarity between SGI's chart beginning in Jan 95 and Sunw's 97 chart. |
