The leading supplier of the computer servers that fuelled the dot-com boom, Sun Microsystems Inc. has fallen victim to the commoditisation of the computers that do corporate America’s heavy lifting.
Deep in identity crisis as its executives try to reinvent the company, there’s been loose talk of Sun as a possible takeover target, and some analysts wonder whether it will ever return to the days of strong revenue growth and record profits.
Even co-founder and CEO Scott McNealy’s industry famous tirades against rivals seem muted.
McNealy, who declined to make himself available for this article, is more likely to talk about cutting costs — or the new ”whole-system” approach of his sales team. To many ears, such a strategy sounds strikingly similar to the mantras of International Business Machines Corp.(IBM), Hewlett-Packard Co. (HP) and other competitors.
Last year, Sun’s revenues fell 32% from a record $18,3- billion in 2001. Sales are down this year, too.
The obvious reason for Sun’s fall is that it relied too much on the very companies that flamed out so spectacularly. And attempts to capture new markets have been hurt by the overall economic malaise.
But Sun’s woes have been exacerbated by its slow reaction to fundamental changes in the industry, analysts say.
Sun’s servers are being squeezed by the increasing power of so-called commodity chips from Intel Corp. and low-cost operating systems like Linux, that a few years ago, could not approach the performance of the company’s Sparc microprocessors and Unix-based Solaris operating system.
So when the Screen Actors Guild’s health and pension fund decided to upgrade its servers earlier this year, the contract went to Hewlett-Packard, which offered competitively priced equipment that not only runs Linux but also works well with existing servers using multiple operating systems.
Only recently has Sun switched from publicly bashing Linux and Intel to launching low-cost Linux servers on Intel chips — a strategy that IBM and HP jumped on sooner.
Sun, meanwhile, is also continuing the expensive development of Sparc and Solaris.
It is spending millions pushing Java, a programming language that provides little in direct revenue, but can be found in millions of cell phones, personal computers and other devices.
Sun says Java opens markets for its equipment, particularly since it’s a keystone in web services, in which computers communicate seamlessly with one another regardless of operating system.
HP, IBM and Microsoft are also heavily touting web services.
”It seems like McNealy’s kind of serving up the strategy du jour and because of that they’ve had some lack of conviction in what play they’re going to call,” said Jeff Benck, IBM’s director of eServer marketing.
Still, it is hard to write off a company that has more than $5,5- billion in cash and marketable securities. Even in the depressed server market, it eked out a small profit in its most recent quarter.
And since March, its stock price has jumped 53%, though it’s still far from the all-time high of $64 set in 2000.
According to the research firm IDC, Sun gained market share in three Unix server categories in the first quarter. It’s also the leader in Unix shipments and tied with HP in server revenues.
Though Sun is often criticised for being slow to jump on the consulting business bandwagon, the company says it’s merely taking a different tack: focusing on using its software to simplify complex systems.
Keith Horton, executive vice president of operations at TowneBank in Virginia, said he chose Sun over IBM in part because of its approach.
”Sun reminded us a lot of the old IBM, where you bought the hardware and system software and they came out and supported it,” he said.
”We have the technical expertise here … We haven’t needed a consulting staff to come in.”
At Sun’s headquarters in California, morale is showing signs of a rebound from the low point of about six months ago — when layoffs by the thousands and the departures of key executives left remaining employees wondering whether Sun was moving in the wrong direction.
One employee, speaking on condition of anonymity, said many workers were discouraged but grumbling abated after answers were given during a series of meetings.
Sun still has to convince outsiders that it can both survive and thrive. It will take time for Sun’s strategies — and an above-average research and development budget at 15% of revenue — to pay off.
Java also could pay off if Sun’s $1-billion private antitrust lawsuit against Microsoft is won or settled favourably, though some consider the case a distraction. – Sapa-AP