Last Market Report on Sun Compatible OEMs?

Paint it Black ? or Not Fade Away?

Sun's new songs play better for a new generation of OEM partners.


by Zsolt Kerekes editor SPARC Product Directory - March 29, 2005

Active marketing support for Sun's SPARC platform by Independent Hardware Vendors in the first quarter of 2005 has declined to a lower level now than it was back in 1990, the year after Sun launched the SPARCstation 1. Does this mean a bleak prospect for users and stakeholders in the market? This article, based on first hand contact with companies in the market, describes what's happening now in the SPARC compatible systems market , and puts it into a historical context. It also predicts which segments in the Sun compatible hardware market have the most upside potential for suitable partners.

All markets have their ups and downs. But the Sun compatible SPARC systems market has reached a stage where it's hard for most observers to understand what's happening. As the market has changed from being a pseudo open market to a de-facto proprietary one - most of the information about what's really going on is not plainly on view. And what is revealed (by Sun) can't always be relied on - due to optimistic hype, deliberate competitive misinformation, and poor competitive analysis by Sun's own marketers.

So how can SPARC users, marketers, technology partners and competitors make sense of what's going on - in a fashion which helps them form effective strategic plans?

Well just as the CIA's Kremlin watchers in the cold war - could pick out threads from clues which most others would miss and from them predict the most likely directions of change - we can do the same. As a long term Kremlin and SPARC market watcher, I will try to bring to your attention some useful currents. Some are going downstream, some are going upstream and some are stalled. It's a mixed picture.

Is the SPARC market growing in server shipments? - Yes - most likely.

Is the SPARC market growing in year on year revenue? - Yes - most likely. But it's running at about half the peak revenue level of 5 years ago. It's not likely that it will regain that high ground within a forseeable timeframe. But it's not impossible either. A recovery to historic high revenue levels would rely on Sun's server competition having some very serious upsets - like a faulty processor - or a series of bad operating system problems. (Which have all happened before to various companies in the IT market.)

One thing that is clear to anyone looking at the signs is that the 3rd great cull of SPARC compatible manufacturers is currently in progress and well underway. This competitive extinction of companies and products from the SPARC landscape is quite different to those which have gone before. It's creating less waves. But the impact on the market will be quite profound. What's not so clear, is that there are many parts of the SPARC systems market today which are positively bubbling with high energy growth and enthusiasm.

Let's look at some market history to see how we got to this complex brew.


The 1st Great Cull of SPARC Compatible OEMs happened in the period 1997 to 2000.

This was triggered by two technology changes introduced in Sun's SPARC systems in 1995 to 1996
  • the introduction of 64 bit SPARC processors, and
  • the adoption by Sun of the industry standard PCI bus to replaces Sun's own SBus - which had been introduced in 1989.
The transition to 64 bit SPARC processors was a step which triggered the market exit of the leading 32 bit SPARC chip company Ross Technology whose hyperSPARC chip had first competed with Sun, and then ended up being used by Sun itself. Although Fujitsu also launched their own 64 bit SPARC chip at the same time as Sun (well actually a few weeks before) Fujitsu's strategy was to use this in their own systems - and they did not supply the SPARC64 chip to other makers of SPARC systems. At that time (Q4 1995) there were dozens of manufacturers of SPARC systems. Many struggled to compete with Sun for a year or so using faster 32 bit chips. But the performance race at that time went to the 64 bit SPARC chips. (Unlike the performance race in 2001 to 2004 in which 32 bit architecture processors typically outperformed 64 bit chips - because their higher Gigahertz clock rates compensated for their narrower register I/O datapaths.) So, back in the late 1990s, SPARC systems makers had to turn to their main competitor Sun to buy 64 bit processors or get out of the business. Sun did a good trade supplying its own SPARC processors and motherboards to its system level competitors upto about 1999.

Sun's switch to the PCI bus in 1996 lowered the entry costs for host bus adapter manufacturers who wanted to sell their products to Sun users. Instead of having to devote large resources to understanding and supporting Sun's SBus, HBA makers could just write Solaris drivers for cards which they were already planning to sell in the PC and Intel Architecture server markets. This opened up genuine free market competition. Many of the companies which had focused exclusively on the Sun market were cushioned from the transition from SBus to PCI for a year or so by supplying the aftermarket, but in the sweet spot of the market - in supplying HBAs for Sun's newest workstations and servers - the niche SBus makers now found they were competing with bigger companies which had more distribution channels, lower manufacturing costs and better marketing organisations. Another factor towards the end of the 1990s was that the market share wars in technologies like Fibre-channel adapters, SCSI RAID controllers and telecoms adapters were coming to a close. The consolidation and reduction in HBA makers which resulted at this stage was due to the natural workings of the market. Sun and its users got the benefits of lower adapter card costs and access to a bigger technology base than previously available via SBus.


The 2nd Great Cull of SPARC Compatible OEMs happened in 2001.

In the second half of 2000 the dotcom bubble started to burst. This impacted the Intel PC market first - but its effect on Sun stayed hidden until April 2001 when Sun reported its financial results for the first calendar quarter of 2000. Then later in the year - the terrorist atrocities of 9/11 created a business climate that put the seal on what would eventually become a 3 year IT recession.

Although most of the IT market was negatively effected by these events - there were specific actions by Sun which made things worse for those SPARC compatible OEMs whose products used SPARC chips or motherboards supplied by Sun.

It was reported to SPARC Product Directory by many vendors that Sun substantially changed the way it did business with them.

Sun allegedly increased the prices of its SPARC processors and motherboards which ran counter to the declining price trends in the rest of the IT market, and therefore made it impossible for most of its previous OEM customers to continue integrating these products and selling them at a profit. While Sun's market had been growing it had been happy to have other IHVs developing the SPARC customer base. But faced with a static or (as it turned out) steeply declining market, and with a large amount of virtually unused SPARC systems coming back onto the market from liquidated dotcoms, SPARC Product Directory believes that Sun used its monopoly position in the supply of SPARC chips to snuff out anyone who could be classified as a head on competitor.

The bitterness which many of Sun's former technology partners felt towards Sun's predatory practises at that time ensures that they will go out of their way to avoid future partnerships which involve Sun or its technologies. So I think that Sun's attempt to position Solaris 10 as an open source operating system for Intel Architecture servers will not attract back many lapsed SPARC partners.



The 3rd Great Cull of SPARC Compatible OEMs - Q4 2004 to 2005.

The IT market has been growing for more than a year. But the recovery in the Sun market lagged the general server and PC recovery by 2 or 3 quarters. Many of the SPARC OEMs who survived the recession have been quietly dropping their support for the SPARC platform. To paraphrase many of the conversations I've had on this subject recently.

"The Sun market is dead."

"The Sun market is not growing."

"We see much better opportunities for growth outside the Sun market."

From outside - many of these companies look pretty much the same as they did before. But there has been less talk of SPARC. The budgets for promoting SPARC products have been terminated. The product catalogs will still show the same old SPARC products that were there before - for a while. From the inside - according to those still inside and many who have jumped ship to competitors - the priorities have changed.

"The product roadmap for SPARC ended with the last product."

That means users will see much less choice in suppliers than they saw before.

The overall DRAM memory market grew 25% in revenue in 2004 - so you'd think that 3rd party memory vendors who sell into the Sun market would be happy. But I've heard reports from both VARs and OEMs suggesting that they will pull out of the Sun memory market. The reason? Sun has been offering very competitive pricing on Sun branded memory in the last year - often cheaper or little more expensive than 3rd party memory.



Some SPARC IHVs Have Been Reporting Significant Growth - in 2004 / 2005

As I said at the start of this article. The Sun SPARC compatible hardware market presents a complicated picture. I've discussed the negative trends above but there are a number of areas in which SPARC IHVs have been doing well or in which the vendors are mostly upbeat and confident about current and future business.

Notebooks

SPARC notebooks is a product area which has seen an explosion of new products and suppliers in recent years. SPARC notebooks have been getting faster, with dual processor notebooks now available with performances as fast (or sometimes faster than dual processor rackmount servers).

One customer of Tadpole Computer was surprised to find that their Tadpole notebook, when used as a network server, ran faster than their Sun server which used the same processor. After a technical investigation the reason turned out to be that because the notebook was designed with a small motherboard - the design ran the memory with less wait states. The result was the opposite of what you'd expect.

The main reason that PC notebooks are sluggish is that they use low power disk drives which run at 4,200 RPM compared to 7,200 RPM for many desktops and 15,000 RPM for servers. This creates the impression that all notebooks are sluggards. But if you attach a fast disk to a well designed SPARC notebook you can get a pleasant surprise. SPARC notebook makers have tried for years to get users to think of them as disaster recovery machines. You can lock one in a fireproof safe and have it ready to restart your enterprise (maybe with less users) if you have a catastrophic failure of your main server. Which can just as easily be caused by an admin error as hardware failure.

SPARC notebooks have also been getting cheaper and lighter at the low performance end. Why would you want a low performance SPARC notebook? Well - they have a much lower cost of ownership than desktop machines when it comes to running training courses on customer sites. And they are a useful sales and development tool for software companies who support SPARC / Solaris software distributions.

Why has the notebook market done so well for SPARC IHVs? There are 3 reasons:-
  • The notebook market generally (not just SPARC) escaped the worst effects of the IT recession which hit desktops and servers. It was fueled by the growth of a more mobile workforce who use notebooks instead of desktops even when they're in the office.
  • SPARC notebook makers were not targeted by Sun's death rays. Sun flirted with making its own SPARC notebooks in the early 1990s - but gave up after making some dud products - and left this market to specialist manufacturers. So the notebook sector escaped the blasts of internecine warfare which killed off all the commercial SPARC server makers which used Sun's chips and motherboards. In fact Sun is a reseller of some SPARC notebooks - and that's been a big boost for business.
  • Increased demand by military customers (see below.)
The fastest growth area in the SPARC systems market in the last 4 years has been in military, intelligence, homeland security and defense applications.

Military

It seems unbelievable now, that when I spoke to many military SPARC manufacturers at the start of President George W Bush's first term in office, that concerns were raised that the new administration would cut back on defense spending as part of their avowed plans to reduce big government and reduce taxes. All that was changed by the events of 9/11. The increased spending in the military and defense markets after 9/11 and in the build up to the 2nd Gulf War provided big opportunities for all suppliers in the SPARC / Solaris market. The widespread public concerns about viruses and security leaks in Microsoft platforms meant that the SPARC platform, which otherwise might have been reduced in scope at this time due to performance parity by Intel Architecture processors, instead became an important strategic tool which was widely regarded as being less vulnerable to electronic attacks.

As some manufacturers exit the SPARC market, the updraft from their departure creates business opportunities for those who remain committed to the SPARC platform.

SPARC SBCs

In the market for blade products or SPARC SBCs - the number of active suppliers (apart from Sun) has dwindled from 8 (6 years ago) to just one - Themis Computer. You don't need to be a business guru to see the growth opportunities that creates. In fact Themis is expected to benefit greatly from the apparent recent exit in 2004/5 from the SPARC market by the last of their long term rivals Force Computers and Continuous Computing who appear to be focusing instead on their Intel Architecture product lines. In the last few months the company has made a series of announcements about opening new sales offices and new sales hires - presumably to provide more feet on the street to welcome on board long time SPARC users who have been left stranded by the departed competition.
Storage

The storage market has been an expanding area recently for SPARC IHVs.

In a series of articles published in 2000 I explained why Sun's storage policy at that time, which was based on expensive acquisitions and internally developed products which failed to meet the needs of most of computer users - who weren't using Solaris - was doomed to failure. In the years that followed - this was confirmed as market data suggested that nearly all Sun's storage sales were in the captive Sun server market, and that Sun's market share outside the Solaris/ Linux base was almost nil.

All that has been changing recently.

During 2004 Sun confirmed oem and reseller agreements with over a dozen strategic storage manufacturers. Sun's new strategy is to get the storage business (which has become a bigger part of the datacenter IT budget than servers) by being a distributor of best of breed storage products instead of designing these systems itself. In many cases the products are branded as Sun products - but are not reengineered - but merely rebadged versions of commercially successful products. Storage OEMs have been falling over themselves to be included in Sun's storage boutique.

This strategy, which worked for Compaq before its merger with HP in 2002, represents a business which is currently worth around $2 billion per annum for Sun (including internal and external disk and tape storage). If Sun can leverage its strong Unix credibility and marketing machine better within the wider Linux server market to target customers who buy other brands of Linux server - then it's possible that in the period 2005 to 2007 - Sun could earn significantly more revenue from its storage reseller business than from its AMD server business. In fact growth in Sun's storage business in the next few years could realistically take the company to $3 billion storage revenue.

...Later note:- this article was published in March 2005 before Sun's (June 2005) announced acquisition of StorageTek. The combination of that and Sun's acquisition of Procomm's NAS technology (May 2005) means that Sun's storage related revenues in 2005 could be on the order of $5 billion. If successful - this could make Sun one of the 10 biggest storage companies in 2008.

Unlike the old Sun compatible server market in the 1990s when most SPARC IHVs regarded Sun as head to head competitors, today most of the storage OEMs I've spoken to have been enthusiastic about Sun's adoption and remarketing of their products. They see Sun opening up big markets which they would be unable to reach through their own efforts. Upcoming changes in the storage market in 2005 like Serial Attached SCSI, 10GbpsiSCSI and InfiniBand, which Sun can influence by its server side technologies, will create new lock-in opportunities for Sun sales people as users will initially buy those products from server companies until they are comfortable with 3rd party compatibility issues.

So, overall, I expect we will see a surge of new manufacturers who want to sing in Sun's new band.
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Sun and its SPARC IHVs... Paint it Black? or Not Fade Away?
There are many ways of looking at the complex relationships between Sun and the companies we'll just call - the SPARC IHVs.

They all loved to party with Sun when the market was growing and many thought Sun would help them get rich quick. Sun loved to be loved too. Along the way Sun had consensual relationships with a lot of IHVs and then ditched them when times got tough.

They don't like to talk about this kind of thing publicly. It's embarrassing. But what's the situation now?

It's a complicated picture as you would expect in any relationships that aren't strictly monogamous. Some of the most important developing relationships in the market are happening behind closed doors.

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