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Are Sun's days numbered?

Comeback Strategies for a Faded Rock Star

October 14, 2003 article by Zsolt Kerekes editor and publisher of the SPARC Product Directory
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Rumors of Sun's death have been greatly exaggerated in the financial and technical press, although Sun has stellar problems to be sure. This article looks at all the options for Sun's survival.
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Spellabyte and Terrorbyte loved sitting around the campfire, discussing the good old days of SPARC computing.
Old rockers can keep going for decades. Mick Jagger, Elton John and Paul McCartney have proved that old timers can shake it as well as the leanest nouveau boy bands. But the old reliables stay in the charts, not by endless re-releases of their classic standards, but by working hard on new material.

It's three years since Sun Microsystems was at the top of the server charts. Since then the once hot SPARC server maker has lost its business sparkle, and its lame comeback attempts have seen a cool reception in the market. As the quarters roll by and Sun's losses keep mounting up, I ask the questions?

Are Sun's days numbered?

Is there a comeback strategy for the old rock star?

Despite what you'll read in the ill informed financial press, Sun's decline was not just due to a single episode or failure. Just as its success was not to a single achievement. Instead a lot of little downward steps added up to a great big fall. I've been charting this downward progress here in the SPARC Product Directory for many years. You can see what I think were the critical events or non-events in the column on the right.

If you're a customer, or partner or employee of Sun, you probably just want to know these simple points:- Is the company doomed? Should you bail out now, before the rush sets in? Or is it worth waiting for better times? And if better times are coming, how will you recognise the signs towards that progress.

I believe that Sun has several different possible futures depending on what it starts to do now.

Future #1 - the Same Old Song

If Sun carries on in the same old groove, with the current separation of its SPARC and Linux strategies I think there's a 40% probability that Sun will go bust or be acquired within the next 18 months. I've seen plenty of better performing companies than Sun head in that direction and get into my acquired, dead, renamed, merged & gone away companies list.

If that happens there will be a future for SPARC based systems, because Sun doesn't actually make its own chips, and others, including Fujitsu, have designed SPARC chips in the past. But apart from a simple design rule shrink which would give another two year kick to performance, SPARC would cease being a commercially competitive technology after another two years. Beyond that, it might still be used for five years in military and embedded systems, but there would be no future without a strong OS sponsor behind it.

Future #2 - Get the Business Consultants in and Make Sun More Profitable

This strategy would cut investment in technology and dispose of business units which were non-core. It's easy to imagine what the hatchet men would do in the case of Sun...

Exit the unprofitable Intel/Linux business. Sell off Java as a medium sized software company. Chop away at the unprofitable entry level SPARC server range. Sack 50% of the VARs and take more business directly in the mid to high end SPARC server market. Stop piddling around making the world's most expensive me-too network storage, and buy all of it in from outside.

That would work fine for about a year, and Sun could get good profits that way on 30% lower revenue and being a $5 Billion company. But what would happen after that? Cutting back on technology would mean that the company could continue being profitable for maybe another two year as the revenue trickled south to $1 Billion. In three years the company would have lost its edge, the SPARC processor line would be regarded as a joke, and the company would have a slow lingering death as a small services organization living off a customer base which was just too lazy to unplug its legacy systems.

Whatever other criticisms you may level against Sun's CEO, Scott McNealy - being parsimonious with development budgets isn't one of them. Fortunately Sun hasn't started down this route yet. But if the top management changes, it could still happen. So watch out.

Future #3 - Learn a New Song - Take a Gamble on SPARC/ Linux

Linux is the only Unix OS which has a credible long term future. The Unix world got a slap in the face by Sun's antics with Solaris x86 in recent years. The "now you can have it", "now you can't" games from Sun woke up even the doziest of techies asleep at the back of the class, with a clear message that the operating system they had bought into might have had open systems roots, but it was in fact a tightly controlled proprietary OS. Single sourced with all the advantages and disadvantages in terms of cost, risk of lock-in and availability that come with that proprietary baggage.

I've said it before, and I'll say it again. Sun needs to commit to a transparent SPARC/Linux server line.

That will increase confidence in the SPARC/Solaris user community and will be much more credible than Sun's lame x86/Linux products, which most Linux buyers (over 99%) wouldn't touch with a bargepole.

The only problem is that at the entry level end of the SPARC/Linux server range, Sun would have to price SPARC servers below those of higher powered Intel architecture boxes. That's something which the company has always shied away from in the past.

A successfully implemented SPARC/ Linux strategy could grow Sun's revenues and take the company back into profit.

On the other hand, if Sun does this too late, or in a half hearted manner, the alternative futures I've mapped out above will come to pass. And then all you'll hear about Sun in the future will those low cost "best of" compilation CDs they advertise on TV at Christmas.

See also:- Why Sun Should Acquire a Solid State Disk Company (May 2004)
Sun founders in their  groovy startup period, click for Sun history
In the mid 1990s Sun Microsystems was a cool band. They played sweet songs like "Open Systems". They drove fast SPARC accelerated systems. And they made money for their investors. It looked like they could do no wrong.
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How Did Sun Microsystems Fall from Grace?

I
t wasn't just that the songs got less sweet, or the hubris or the (Java) drugs. Fashions are fickle. The times changed, and the fans changed but the old rockers didn't notice or didn't seem to care.

Sun's decline was charted in many articles in the SPARC Product Directory as it happened. Here are some of the highlights.

In 1996 Sun stopped actively promoting its "SPARC" brand and instead Sun and Java became the new brands. Later when most other SPARC server companies had been driven out of business, this was taken as a sign that Sun may be playing the open systems tunes, but its real tastes were proprietary.

In 1999 Sun's star shone brightly enough that it could have killed off the fledgeling Linux market by launching its own range of Solaris x86 servers, and promoting its OS as an open source standard. But Sun clearly gave the impression that it didn't want to soil its hands with that fithy Intel hardware. Four years later, when Sun tried to go down that route. It was already well worn by others who had been there before.

In 2000 the trendy tunes in the computer market were all about network storage. Sun tried to get into that. But it had too much of a loner image to fit in with all those Intel server users. And it was too fat to squeeze in as a low cost supplier. We said it wouldn't work at the time. Sun spent hundreds of millions of dollars to acquire a new image. But what the market saw was mutton dressed as lamb. It wasn't buying.

In 2001 Sun got hit by a treble whammy. The dotcom generation, its biggest fans, were getting old or had passed on. And reliability problems dented the cool image of its SPARC servers. And actually when you took a closer look at those SPARC processors they didn't seem so fast any more. Sun had lost its edge.

In the next few years Sun's revenue continued to decline. Its profits disappeared. It tried to make a lame comeback by playing some newer Intel/Linux tunes. But if you looked closely at their videos you could see the group wasn't really singing at all. They had been dubbed. Sun had become a follower of fashion, and was no longer a leader. But can Sun still make a comeback?
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...Later - 10 days after publishing this article yet another option emerged...

Sun and Fujitsu May Merge High End SPARC Server Product Lines

Editor:- October 24, 2003 - a news story today in JapanToday.com speculates that Sun Microsystems may reduce development costs by pooling resources with Fujitsu on the design of future high end SPARC servers.

This wouldn't be the first time that Sun teamed with a SPARC partner in the mainframe business. Sun and Cray Research codesigned the backplane and architecture of Sun's barnstorming SPARCcenter 2,000 which was launched in 1992. Sun got the kudos from that design, while Cray's own SuperServer 6400 garnered virtually no sales due to poor marketing.

A decade ago there were dozens of commercial SPARC mid range server companies, and as many as 6 companies which made mainframe class SPARC systems (Solborne, Auspex, Cray, Meiko, ICL and Sun). But today Fujitsu is the only mainframe company still using SPARC technology apart from Sun.

An agreement between Sun and Fujitsu on high end SPARC development would do more than save Sun hundreds of million dollars annually in development costs. In recent years, Fujitsu's own PrimePower SPARC servers have outperformed Sun in public benchmarks. Also Fujitsu's independently designed SPARC servers did not suffer the ignominious reliability problems which hit Sun a few years ago.

Fujitu's flagship products have often been better than Sun's, but Sun's marketing has always been superior. In the late 1990s - Fujitsu had to write off its failed investment in HAL Computer - which developed US designed 64 bit SPARC chips, workstations and servers.

A few days ago in the editorial office I was discussing the possibility that Fujitsu may try to acquire Sun. We agreed it wouldn't work because it would be like a hippo trying to manage a tiger. The hippo would have to sit on the tiger to keep control of what it was up to. And having a tame tiger which can only move at a snail's pace wouldn't be much fun. This new agreement, if it goes ahead, will solve some, but by no means all of Sun's many deep rooted business problems.

...Later - 8 months after publishing this article this deal was confirmed publicly.

SANTA CLARA, Calif., and TOKYO - June 2, 2004 - Sun Microsystems, Inc. and Fujitsu Limited today announced the expansion of their 20-year strategic relationship to include the joint development and delivery of future generation Solaris and SPARC-based systems.
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Later... The Sun Microsoft Settlement - April 2004
When you cut away all the rhetoric about this deal the most important thing from the viewpoint of SPARC readers - is that the $1.6 billion nett which Sun will get from Microsoft buys another 6 to 9 months of life at Sun's current burn rate. In that time a lot of things can happen.

Most significantly Sun's new SPARC 4 servers will hit a market which is desperate for higher performance, and moreover, because of the US economic recovery can actually afford to buy those systems.

Provided that Sun does a good packaging deal in its top of the line servers to integrate performance accelerators (such as wire speed Fibre-Channel and TCP IP Offload host bus adapters, and fast disks - maybe even solid state disks) the performance figures should be very competitive.

Unlike Intel which has to wait ages before Microsoft tweaks its operating systems to use new hardware features, Sun as usual, has been designing the new version of Solaris to do that all along the way. That's one reason why new SPARC processors always look good - they benefit from simultaneous hardware and software enhancements at the time they are announced.

For Microsoft the settlement is small change, and may improve its legal battle with the European Union. Its battle with Sun is old news. Microsoft isn't fighting that war any more. That was World War I. Microsoft's current war is in the storage space. When data storage systems became operating system agnostic that threatened to make the server OS irrelevant. Microsoft reacted by providing a version of its server software which actually runs on storage appliances. That way it wins whatever happens.

Microsoft lost the war to power cell phones (Linux won that one) but the server storage war is more visible and has been getting a lot more attention recently.

Back to the deal's effects on Sun... Will we see a spate of new Sun AMD powered servers which are Windows compatible?

Although the settlement opens the door to that, nobody really cares, and that's not the way that Sun will survive.

Sun will live or die by its success as keeping SPARC servers running as competitive alternatives to Intel Architecture systems. If IBM could do it with their mainframes than Sun still has a fighting chance, and now it's got a much longer breathing space in which to make that happen.
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