The Truth About SUN
Forbes Digital Tool
"The halo effect of Java and the Internet is getting Sun a lot of new accounts."
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Java and Jini are two of the most overhyped names in the computer industry. Sun Microsystems' (SUNW) maverick chief executive, Scott McNealy, has been smart to make them his calling card. From popular television shows to business magazines to small startup web sites, everyone has bought into McNealy's Java-Jini gospel.
The result is that the brash McNealy and his company are welcome in every single boardroom the world over; well, except for Microsoft's. Future marketing students will probably learn about something called McNealy's Law: Tell them what they want to hear then sell them what you want to sell. McNealy is now leveraging the success of Java and Jini to take Sun in a new direction.
That new direction involves "big iron" or high-end servers, which cost a million bucks a pop, carry a 70% plus gross margin and add a lot of oomph to Sun's bottom line. These heavyweight machines go by the name Starfire, and they shouldn't be confused with your average, run-of-the-mill personal computers.
The Starfire mainframe class computers can have up to 64 microprocessors running at the same time inside a box the size of a refrigerator, support 64 gigabytes of memory and have a maximum storage capacity of 60 terabytes. A whole roomful of 450-plus MHz Intel PCs cannot match the computing power of a single Starfire mainframe. Sun has sold 1,000 of these machines to companies such as Chase Manhattan, and the earnings on those sales alone is more than the company will ever see from the Java programming language.
To McNealy's credit, it's been a good strategy and investors have been rewarded for supporting the company. In the past 12 months, Sun's stock has risen 121% to $102 from $46. Such triple-digit gains in stock prices were until recently reserved for the kings of the desktop computer kingdom--Intel Corp. (INTC), Microsoft Corp. (MSFT) and Dell Computer (DELL).
How did this miracle happen? Up until the early 1990s, Sun had always been known for making solid, affordable high-end computers--servers and workstations--that run the Sun version of the UNIX operating system (Solaris), which is geared for academic and engineering use. It's been a stable business for the company, but not one that was growing at breakneck speeds. In this era of ever-increasing earnings, the prospect of 10% growth is not acceptable. Technology companies need more pizzazz than that.
Enter Java, a language that can be used to develop applications that run on any computer platform, using any kind of chip. Its introduction in 1996 promised to revolutionize the technology world. McNealy added Jini to the marketing mix a couple of years later. Jini, a home networking technology, is a derivative of Java that, in simple terms, lets your toaster communicate with your refrigerator or any other appliance in your house. With these two hot Internet technologies in place, Sun suddenly had an aura of coolness when compared with other companies in the dowdy world of Windows and PCs.
Inside nearly every Forbes 500s company, board members were wondering, who is this guy McNealy and what is Java? McNealy gets their attention and his marketing team makes the sale. Up until the early 1990s, despite having good products, Sun was not even considered a hardware supplier for these billion dollar companies, which felt more comfortable buying their hardware from the likes of Hewlett-Packard (HWP) and International Business Machines (IBM). Sun needed to get access to this blue-chip club in order to grow faster.
"The halo effect of Java and the Internet is getting Sun a lot of new accounts," says Morgan Gerhart, program director, servers, for The Meta Group, a Stamford, Conn.-based market research and consulting group. Using Java and Jini to get attention, Sun is now on the shortlist of all corporate buyers, along with HP and IBM. This position is a 180 degree turnabout from even the early 1990s, when Sun was perceived as an upstart that produced workstations and UNIX servers which were not reliable enough to be used by telecommunication companies and financial institutions.
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