Business Week excerpts ...
BRASH BOSS. Suddenly, the maker of whizzy engineering workstations and the faceless backroom computers behind the Internet and corporate networks is the toast of techdom--and beyond. Whether it's the AOL deal, Java's snowballing popularity, Sun's leading role in the Microsoft case, or simply outpacing nearly all its rivals, Sun has finally reached the top tier of the computer industry. Today, more of the computing, communications, and even consumer-electronics worlds are starting to orbit around Sun's vision of how information will be
handled in the Internet Age--and those that aren't are scrambling to keep from getting sucked in. Says Merrill Lynch & Co. analyst Steven M. Milunovich: ''If you want to know where the computer industry is going, ask Sun.''
The brash, 44-year-old McNealy is only too happy to explain it. Death to today's style of computing, he says, where people run individual programs on desktop PCs using Microsoft's Windows. Instead, McNealy envisions a computing world that is more communal. He favors shoving all of today's desktop complexity into air-conditioned rooms full of powerful, networked servers. These big computers then dish up information to cheap information appliances that are almost as easy to use as making a phone call. And by using Java--which allows not just data but programs to be sent easily over networks--mere mortals will get access to an exploding array of Internet services without the need for massive installations or updates of bulky software. ''Microsoft's vision was to put a mainframe on everybody's desktop,'' says McNealy. ''We want to provide dial tone for the Internet. We couldn't have more different visions.''
That has made Sun the prime foil to Microsoft's growing hegemony in computers. More than any other industry battle, the clash between Sun and Microsoft underscores the mind-bending shifts brought on by the Internet as it forces companies to rethink every aspect of their businesses--and which technologies to adopt. As the Internet becomes more central to how every company does business, Sun hopes to lead an overthrow of the personal computer. ''The PC is just a blip. It's a big, bright blip, but just a blip,'' says McNealy. ''Fifty years from now, people are going to look back and say: 'Did you really have a computer on your desk? How weird.'''
Surprisingly, it was just a few years ago--back when Java was a fancy cup of coffee and Sun was that hot yellow ball in the sky--that many thought McNealy held the weird view. No more. Today, Sun's star has never been higher, and McNealy's vision of computing never closer to happening. Thanks to the Internet, Sun's Java software is gathering steam. Because Java can serve as the lingua franca for Internet programs that will run on any type of device, it is becoming a staple with 900,000 software developers, who have created thousands of Java programs that do everything from providing Web surfers with the latest stock quotes to mining vast corporate databases for sales information. ''We know how to '.com' the world,'' says Chief Operating Officer Edward J. Zander.
FRESH OOMPH. Now, Sun's powerful servers, which scoop up and dispatch information over far-flung networks, are in hot demand from the likes of Colgate-Palmolive, Hershey Foods, GTE, and American Express--none of which bought Sun gear before. That has put Sun's server sales on a pace to rise 30% in 1998, compared with an 18% gain for servers made by HP and a 10% increase for those from IBM, according to estimates by market researcher International Data Corp. (IDC). And even though the Asian flu knocked HP's and IBM's profits down this year and kept their sales growth under 10%, Sun's profits in the quarter ended Sept. 30 soared 21%, to $198 million, while sales jumped 19%, to $2.5 billion. Sun's just ended quarter could be a slight disappointment, though, because the company cut over from a mainframe-based financial system to all-Sun gear, potentially delaying shipment of some orders, analysts say. But demand remains strong--and so does Sun's stock, which more than doubled in 1998, to $85.
And experts are betting that the AOL deal will boost Sun's fortunes
even more. By hawking Netscape's E-commerce software along with Sun computers, Sun can attract customers that want a more complete package. And the AOL-Netscape portal adds another powerful dimension, allowing Sun to offer buyers a place for their own online services. The troika also plans to develop Net appliances, most likely using Java and not requiring software from Microsoft. Says AOL's Case: ''Sun enables us to make the promise of E-commerce a reality.''
Indeed, Java is the fuel behind much of Sun's growing influence. Today, the software is rocketing the $9.8 billion company well past the limits of the traditional computer market. Java is rapidly drawing support from makers of consumer devices such as wireless phones, video game consoles, and smart cards. Cable giant Tele-Communications Inc., for instance, plans to use Java to deliver phone service, bill-paying, and other services via some 20 million TV set-top boxes due to start shipping midyear. Meanwhile, Windows CE, a consumer version of Microsoft's operating software, will be on only 5 million of those 20 million set-tops, according to TCI.
POPPYCOCK. The biggest surprise of all: Sun's McNealy, a Stanford University MBA with nary a technology root, has outmaneuvered--at least for the moment--Microsoft Chairman Bill Gates. While Sun built network smarts into its computers from the start, Gates missed the significance of the Internet at first--forcing a mad scramble to catch up. Then, when Sun released Java in mid-1995 as a programming language that could spice up Web sites, Microsoft publicly dismissed Java's wider potential even as its popularity skyrocketed.
Against all odds, Sun even won the first round in November of its lawsuit charging Microsoft with illegally changing Java so that resulting programs run only on Windows. That lifted a big cloud
that had been hanging over Sun for the past year. Says Bruce Graham, chief information officer at food-service company AmeriServe Food Distribution Inc., which is rolling out 25,000 Sun JavaStation network computers to restaurant customers such as Taco Bell Corp.: ''They've evolved into the leader of the other camp.''
Of course, the other camp, with Microsoft, Intel Corp., and the PC makers, is nothing less than an empire--one bent on keeping its commanding position. They think the notion that PCs will become passe is sheer poppycock and that plummeting computer prices will ensure their popularity. Microsoft, alone, has become much more Net-savvy and is turning its fearsome troops to dominating Internet software and services.
Others are rising to the Internet challenge, too. HP, for instance,
recently won big contracts to supply servers to UUNET and PSINet Inc., leading providers of Internet service. Boasting an unmatched 120,000-person high-tech services force, compared with 7,000 at Sun, IBM has won big E-commerce deals to build the online stores for Macy's, Borders, CD Warehouse, and dozens of others worldwide. Says Neil Isford, IBM's vice-president for electronic commerce: ''We're hearing customers ask, 'Can you do the whole thing for me?'''
Worse for Sun, the PC camp can claim fresh victories in Sun's core
business: While unit sales of Sun's workstations are climbing, its
workstation revenues are expected to fall 2% this year, because of
the low-cost Windows NT machines churned out by Compaq, Dell, and others. And Sun's operating software is under a bruising assault: IDC estimates Microsoft will have shipped 1.6 million copies of its Windows NT Server software in 1998, vs. 167,000 for Sun's rival Solaris, the leading Unix software. ''Sun is vulnerable,'' says John T. Rose, general manager of Compaq Computer's Enterprise Computing Group. ''The world is going to be a mixture of NT and Unix.''
Indeed, with such price pressure on Sun, it's unclear how long the
company can continue to design all its own chips, hardware, and
software--and still compete with PC makers that let Microsoft and
Intel do almost all their research and development for them. Sun
spends 10.4% of its sales on R&D, compared with 4.5% at Compaq and 1.6% at Dell. ''We scale our R&D across a vast industry,'' says Jeff Clarke, general manager of Dell Computer's workstation division. ''Sun tries to do it all themselves.''
Sun's response: It has faced the same challenges for much of the past decade, yet it keeps confounding its critics. Until recently, few people thought Sun would even be around in the Internet Economy, let alone emerge as a leader. Almost since its 1982 start as a maker of workstations for engineers, Sun has been the perennial outsider. After sitting out the PC Revolution, it's now the last major computer maker still refusing to sell machines that use Microsoft programs or Intel's Pentium chips. And Sun puzzled people with its motto: ''The network is the computer.'' The phrase sums up the stubborn belief that vast networks of connected devices powered by big servers would someday subsume the mighty PC. All that, in the face of the incredible rise of Intel and Microsoft, prompted continual doubts about Sun's strategy, vision, and viability. |
