Sun Sees Road To Prosperity Paved With Its Own Products

Could the embodiment of new economy hubris now be the king of IT counterculture? Sun Microsystems' message that companies need to view their IT operations as a system, rather than a collection of hardware, software, and networking, appears to make sense, but the paying public spoke out against Sun in fiscal 2003. The company saw its revenue drop more than 8% year over year as net losses mounted.

Still, Sun is a company with a message. The secret to gaining the upper hand in the market for large IT systems--which include hardware, software, and operating system--is to leverage one's intellectual property rather than become beholden to the cookie-cutter chips and operating systems produced by Intel, Microsoft, and even Red Hat, said Jonathan Schwartz, Sun's executive VP for software, speaking Monday at a media roundtable in New York.

Half of Sun's research and development is devoted to software, and the company shows no signs of changing that. At its SunNetwork event in September, Sun will unveil pricing for its Project Orion initiative. For roughly $100 to $200 per user, Sun customers will have access to a wealth of Sun software, including messaging, middleware, and management apps, as well as the Solaris operating system.

Sun's strategy to continue its development of the UltraSparc processor and Solaris makes a lot of sense for Sun customers, says one analyst. The real challenge is explaining to the broader market why it makes sense for them to abandon whatever products they have and move to Sun, says Sageza Group research director Charles King. "Sometimes the effort to be all things to all people is fraught with more dangers than focusing on what you do best," which in Sun's case is making high-end Unix systems.

While Hewlett-Packard and IBM have placed greater emphasis on Windows and less on their proprietary operating systems, Sun continues to develop Solaris. To accommodate the demand for virtual machines on Intel-based servers, for example, HP and IBM turn to third-party software from VMware Inc. However, Sun plans to deliver logical partitioning through a Solaris 10 feature called zones, slated to be available in late 2004. Operating systems are "the vehicle through which you distribute all of your content," Schwartz says. "Microsoft is successful because they own the distribution vehicle."Java continues to be a bright spot. "Java is a technology that's still opening doors for Sun," King says.

In particular, Sun sees its Java technology as the key to competing in emerging markets, such as Java-enabled phones and smart cards that contain personalized information about their user. Java 2 Platform, Micro Edition, for example, is a standard that opened up a market for Sun for Java-enabled cell phones. Says Schwartz, "We open markets with software; we monetize them with systems."

Although Sun no longer makes its own Linux distribution on the server side, it plans to release by October its open-source Mad Hatter desktop operating system. Sun claims to have 60 PC makers, including Dell and Sony, lined up for Mad Hatter. Pricing for the operating system will be determined when it's formally launched, although Schwartz says it will probably be $50 to $100 per year per desktop.

Sun's strategy to compete with Dell, HP, and IBM on the low end of the server market took a hit last week when the company announced that, less than a year after it started shipping its x86-based LX50 server, it will stop selling the product in October. Companies still interested in buying an x86-based server from Sun will instead be encouraged to buy either the Sun Fire V60x or Sun Fire V65x servers.

While server vendors are compelled these days to have a strategy for the low end of the market, King isn't convinced that such a strategy makes sense for Sun. "The margins are thin, and Sun's got other problems to address," he says.In all, King sees Sun's holistic approach to the data center as a logical strategy on paper, one designed to ensure the high performance and interoperability of complex systems. "But the market doesn't always act logically," he says. "Maybe it's not the right business model at this time."