Technology directors like Joe Overocker of Nando Media are looking for lower-cost solutions. A year and a half ago, Overocker switched his systems, which handle electronic publishing for the McClatchy chain of newspapers, from Sun to Dell Computer.
"Dell seems to be more reliable for us," Overocker said. And Dell cost about half as much. "With the amount we were paying for support for the Solaris machines every year, we could pay for all the Dell hardware," he said.
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April 15, 2002 18:02
Sun Microsystems' CEO Looks for Full Cup of Java
By Elise Ackerman, San Jose Mercury News, Calif.
Apr. 15--Scott McNealy, chairman and chief executive of Sun Microsystems, is famous for his sarcastic attacks on rival Microsoft at JavaOne, the annual jamboree for the Java programming language.
"I can't leave my kids to a world of Ctrl-Alt-Delete," he said at last month's gathering in San Francisco, referring to the famous command to reboot a crashed Microsoft-based personal computer. He urged the 15,000 developers to support Sun's Java instead of tools from "the dark side." But at the end of his speech, McNealy turned uncharacteristically humble. "If you want to support Sun's Java efforts," he said, "feel free to buy a Sun server." Sun certainly needs the extra business. Gone are the days when the Santa Clara company sold so many Internet servers that it called itself "the dot in dot-com." In the new era of miserly tech budgets, Sun has learned that every customer counts.
After a decade of seemingly unstoppable growth that averaged 19 percent a year, sales shrank 27 percent in calendar 2001. Profits are non-existent, and Sun's stock has fallen more than 85 percent since its September 2000 peak, closing Friday at about $8.
Last fall, McNealy laid off workers for the first time in the company's 20-year history, terminating 3,900 people, or about 9 percent of his workforce. If he can't turn things around soon, analysts say, more job cuts are certain.
If McNealy doesn't find a way to revitalize the company, Silicon Valley's fourth-largest company risks becoming a marginal player, specializing in its traditional high-end servers that run the Unix operating system while Microsoft and IBM dominate the broader spectrum of computing.
In an interview, McNealy traced Sun's current troubles to the dot-com implosion. During the late 1990s and early 2000, Sun was overwhelmed with orders from Web start-ups flush with venture cash and newly deregulated telecom companies eager to build out the Internet.
When the dot-coms collapsed and the tech boom ended, a large swath of Sun's customer base was wiped out, from Web hosting company Exodus Communications and high-speed Internet provider Excite At Home to failed energy giant Enron.
"We unfortunately took all those orders during the Internet bubble," McNealy said. "I didn't know how to tell people with green-spiked hair and pierced navels, `No, no, we don't want your money.' We are kind of paying for that." But analysts say that Sun's problems have as much to do with fundamental shifts in the computer industry as they do with post-bubble doldrums.
Sun built its business by selling robust servers that run on its own proprietary SPARC chips and its Solaris operating system. In the past, customers happily paid more for Sun's famous reliability and performance.
But the improved computing power of cheaper, generic systems built on Intel chips and running Microsoft's Windows or the freely distributed Linux software threaten Sun's ability to charge a premium for its hardware or associated maintenance and support.
Corporate budget cuts mandated by the recession haven't helped.
Technology directors like Joe Overocker of Nando Media are looking for lower-cost solutions. A year and a half ago, Overocker switched his systems, which handle electronic publishing for the McClatchy chain of newspapers, from Sun to Dell Computer.
"Dell seems to be more reliable for us," Overocker said. And Dell cost about half as much. "With the amount we were paying for support for the Solaris machines every year, we could pay for all the Dell hardware," he said.
Sun's response to the cheap generics, announced last February, was to expand its offerings to include small, general-purpose servers running Linux.
That prompted worries from Wall Street, which feared that the move would further erode Sun's gross profit margins -- which fell almost 12 percentage points in 2001.
Stephen DeWitt, a Sun vice president in charge of the Linux initiative, said such fears are unfounded. The former CEO of Cobalt Networks, which was acquired by Sun in September 2000, DeWitt likes to remind people that as an independent company selling simple, single-purpose Linux appliances, Cobalt enjoyed profit margins greater than 50 percent.
Sun faces pressure at the high end as well.
According to market research firm IDC, Sun's share of the worldwide Unix server market fell from 35.5 percent in 2000 to 30.8 percent in 2001. Meanwhile, competitors HP and IBM each closed in on Sun's lead, with HP at 25.3 percent of the market, up two points, and IBM at 22.5 percent, up 3.8 points.
IBM is mounting an even stiffer challenge this year. In October, after years of lagging, IBM introduced a high-end machine, the p690, that is considered competitive with Sun's flagship Sun Fire 15K, also known as the Starcat.
The competition intensified last week when both IBM and Sun unveiled new mid-range offerings. Sun's new machine -- the Sun Fire 12K, or Starkitty -- is based on the new UltraSPARC III chip family, which the company claims is three to five years ahead of rival technology.
The Starkitty is the latest of several major product moves Sun has made over the past nine months, including the October introduction of the Sun Fire V880, a popular low-end machine, the September debut of the StarCat and an August announcement that Sun would resell high-end data-storage systems made by Hitachi.
The Hitachi agreement gave Sun something to sell at the high end of the $24 billion storage market, where Sun's own lower-end products put it at fifth place, far below market-share leaders Compaq Computer and EMC, according to IDC.
Together with Sun's ongoing development of cutting-edge software, McNealy argued that the new products position the company as the best choice for customers seeking an integrated hardware and software solution, offering customers everything they need to run applications over an internal network or on the Internet.
When describing their plans for reinvigorating the company, McNealy and other Sun executives repeatedly emphasized this idea of a one-stop shop for a unified network.
"It's called Sun Microsystems for a reason," McNealy declared.
"It's not Sun Microhardware or Sun Microsoftware." Sun's various products can be connected to each other like Lego blocks, he said, allowing customers to avoid the cost of integration.
"Customers want a complete solution," said John Shoemaker, Sun's executive vice president for computer systems. "We are suggesting there is a huge benefit to a single architecture." But some of Sun's longtime customers disagree.
EBay Vice President Marty Abbott, who oversees the online auctioneer's computer systems, has high praise for the new Sun Fire V880, one of Sun's most competitively priced machines.
But eBay also uses even cheaper Intel-based servers running Windows, and Abbott says he prefers to pick clear technology leaders for eBay's needs rather than buy everything from a single provider.
Charles King, an analyst at the Sageza Group, sees more potential in Sun's moves in the area of Web services -- programs that will interoperate over disparate networks.
This idea has captivated the tech industry's imagination because it promises a simple solution to complex computing issues. If it works, it could stimulate a new wave of technology spending.
Most big tech companies have announced Web services initiatives, including Microsoft, which has been heavily marketing its Microsoft.Net initiative. Sun's answer is Sun ONE (which stands for Open Net Environment).
Citing Sun's product portfolio and its traditional markets -- including telecom and financial services -- King said Sun is "a natural player in the space." But it's still too early to know if Web services will help Sun recapture its growth streak. In the meantime, McNealy is hedging his bets. During the next few months, the company will be unveiling another software technology, known as N1, that will act as a network operating system and, in theory, dramatically ease life for corporate data center managers.
McNealy argues that the company is well-positioned for the eventual tech recovery. "I am not looking at bone-dry glass and saying it's half-full," McNealy said. "I'm looking at a pretty full cup of Java here."
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