here's another
The Wall Street Journal Interactive Edition -- January 21, 2000
Tech Center
Sun Microsystems Basks
In Glow of Internet Aura
By DAVID P. HAMILTON
Staff Reporter of THE WALL STREET JOURNAL
Scott McNealy finally has his day in the sun.
Over the last year, Mr. McNealy's company, Sun Microsystems Inc., has, to the surprise of many,
effectively managed to crown itself the premier maker of server computers for the Internet and
e-business. While competitors such as International Business Machines Corp. and
Hewlett-Packard Co. have seen server sales suffer recently, partly due to jitters over a feared
year-2000 computer problem, Sun has grabbed more and more market share.
And while Sun only claims to be the "dot" in "dot-com," its stock could
easily be mistaken for that of a highflying Internet company, having
more than tripled after splitting twice in the last year. That's not bad for
a company that seemed destined a few years ago to languish in the face of attacks from Microsoft
Corp. and Intel Corp.
Sun continued its hot streak Thursday, when it edged out analysts' expectations for its fiscal
second-quarter profit on another big surge in revenues. Sun said net income for the quarter ended
Dec. 26 rose 35% to $353.4 million, or 21 cents a diluted share, from $261.4 million, or 16 cents
a share, in the year-earlier period. Analysts surveyed by First Call/Thomson Financial had expected
Sun to post net income of 20 cents a share.
Revenue Jumps by 27%
But Sun also posted impressive revenue growth of 27%, thanks to rocketing sales of its servers to
Internet companies of all stripes. Revenue rose to $3.55 billion from $2.80 billion a year earlier.
That growth is particularly striking given that IBM was forced to admit a day earlier that its
fourth-quarter server sales fell almost 33%.
Prior to the release of its earnings, Sun shares rose $3.625, or 4.4%, to $86.5625 in 4 p.m.
Nasdaq Stock Market trading Thursday.
Mr. McNealy, Sun's chairman, has followed a simple strategy: a relentless focus on selling
Sun-designed technology. Sun sells only servers that use its line of Sparc microprocessor chips and
its brand of the Unix operating system, which it calls Solaris. H-P and IBM, by contrast, sell a
hodge-podge of server lines, each using a unique chip and operating system. Mr. McNealy is fond
of tweaking them for spreading themselves too thin.
That strategy clearly resonates with customers. In addition to a roster of big corporate clients that
includes United Parcel Service Inc., Colgate-Palmolive Co. and America Online Inc., Sun has been
making significant headway in new markets. Its servers power Internet sites run by eBay Inc. and
CDnow Inc., and Sun has recently won several large deals supplying servers to wireless-data
operators such as Lucent Technologies Inc. and Vodafone AirTouch PLC.
Big Deal With Enron
Just Thursday, Sun announced yet another such deal, a five-year, $350 million agreement to supply
more than 18,000 servers and associated data-storage gear and software to a broadband-data
subsidiary of energy giant Enron Corp.
Sun's success is all the more remarkable considering that, by some measures of sheer performance
and cost-effectiveness, its high-end servers can't match newer competing Unix machines from IBM
and H-P. However, Sun says a new line of servers expected at midyear will again put it in front.
Indeed, much of Sun's success reflects a triumph of marketing. Sun's advertising has relentlessly
cast the company as a champion of helping business use the Internet "dot" for competitive
advantage; its latest ads play off the original poster for the movie "Jaws," showing a giant dot rising
from the ocean depths to consume an unwary competitor swimming above.
In addition, Sun has benefited by releasing a steady stream of attention-getting innovations designed
to keep actual and potential rivals off-balance. While few of these have lived up to their original
potential, they have certainly helped create an Internet "buzz" for Sun.
For instance, Java, a much-hyped technology intended to let software work across otherwise
incompatible machines, is widely used on servers to build new business software applications, but
never came close to threatening Microsoft's hold on personal-computer software. Similarly, Sun's
attempt to establish its Jini technology as a standard for networking home appliances hasn't yet
caught fire, and its effort to sell its StarOffice word-processing software as an Internet service is still
in its infancy.
Internet Aura
"Maybe two-thirds of Sun's advantage is marketing perception and having an Internet aura," says
Steven Milunovich, an analyst with Merrill Lynch & Co. "A year ago, maybe that was one-half."
Analysts see few threats to Sun's momentum over the next year or two, but further out clouds are
again gathering. The free Linux operating system, which generally runs on Intel-based servers,
continues to grow in popularity as an inexpensive and reliable alternative both to Microsoft
Windows NT and Unix. Sun competitors H-P and IBM support Linux, but so far Sun has held the
software at arm's length, since it could threaten sales of Sun's Sparc-Solaris servers.
Equally significant, Microsoft is finally scheduled to ship its long-awaited Windows 2000 operating
system in February. A follow-on to Windows NT, Windows 2000 is designed to bolster the
reliability of PC servers, potentially making them an inexpensive threat to much of Sun's low and
midrange server line.
So far, Sun has successfully argued that its Unix machines are far more stable than PC servers, a
winning point with Internet businesses that can lose millions of dollars from a server failure. But over
time, Microsoft and Intel hope to narrow the "reliability gap" to the point that the greater
cost-effectiveness of PC technology sways the market their way.
That's more or less what happened to Sun's original Unix workstation business a few years ago,
when an onslaught of low-priced but high-end PCs helped prompt Sun's shift to servers.
Mr. McNealy, however, remains dismissive. "There's no way you can run eBay on NT," he says.
"Until they can run eBay or E*Trade, they can say whatever they want." |
