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Why Sun Microsystems can’t go it alone

Like everyone else, I have been looking what would happen if IBM were to buy Sun Microsystems. I actually thought it sounded pretty good. IBM would get hardware, some database, virtualization, cloud, and operating system software. Oh, and did I mention that they would control Java. But it sounds (at least as I am writing this) the negociations have broken down. Greed is an interesting phenomenon. Prior to overtures by IBM, Sun’s stock price was around $3.00 a share. IBM was offering as much as $9.50 a share.  I actually thought that price was a bit high — but what do I know.

So, what happens now? I suspect this little drama is far from over. It is possible, if rumors are to be believed that Sun’s Chairman Scott McNealy will take over the reigns of the company once again to try to restore the company to its former glory. It has happened before. Steve Jobs returned to put Apple back on the right path. Michael Dell is trying to turn Dell into the innovator that it had been a decade ago.  Will it happen this time? I think that there are some difficulties with this plan, if it is indeed true. A lot has changed since Sun declared in the 1980s that the network was the computer. Clearly, the company leadership was right. I was an observer of the pragmatic and brilliant marketing company that Sun became in the 1980s, when I worked for its competitor Apollo Computer that was later purchased by HP.

Today, the market is quite different than the market Sun and McNealy had successfully finessed.  Today, the market is consolidating around either very strong global leaders such as IBM, HP, Microsoft, Oracle, Cisco, etc. There is a new generation of leaders emerging that had their start in the Internet era such as Google, Amazon, and Facebook and even Twitter. So, is there room for Sun to remake itself in this new world?

I guess that my take is that it will be very hard for Sun to resurface and remake itself. Here are the three main reasons that I have doubts and why I think that shareholders and board members should sell the company to IBM.

1. Sun Microsystems will have trouble regaining hardware leadership.  While it has some reasonable hardware assets, it is not big enough to take on HP or the emergence of Cisco as a hardware players.  Even companies like Google and Amazon play an important role in hardware — in the commodity relm.

2. While it owns some impressive software assets that it has bought over the past decade, Sun has never learned to leverage these assets to propel it into a leadership role.  It has further confused the market by opening sourcing its software. While this might be popular in a down market, it is not enough to create a repeatable revenue stream. I was watching a funny video of Steve Gilmore interviewing current CEO Jonathan Swartz (as a puppet) that I think captures part of Sun’s problems.

3. Is there a single area of technology where Sun can innovate and out shine its competitors? I imagine there might be some hidden jewels that are transformational and will turn the market upside down inside Sun — but I doubt it. I think that as Cloud Computing moves to center stage, Sun could be a player but not a leader. To be successful, Sun will have to find a way to lead in some area.

The bottom line is that I do not see a good future for Sun as an independent company.  I think that the damage has been done. Not only does the company have to regain shaky customer confidence but it quickly has to start making a profit. It is not an easy climate even for the strongest companies.  While it is possible that McNealy will surprise us all and turn Sun from a struggling player in a consolidating market to a leader but it is probably too late.  Customers who are watching this drama unfold will have to be convinced that Sun has staying power — not just for this year for future decades. If Sun tries to maintain independent, I predict a long and difficult path that will not necessarily end in success.

  1. April 6, 2009 at 4:15 pm

    Hi Judith,

    your thoughts echo mine exactly, maybe we were seperated at birth =)

    http://www.soacenter.com/?p=180

    While I have a bit more enthusiasm for a McNealy led resurgent Sun, it is probably wishful thinking. A tough spot for a once-great company.

    My 2 cents,
    Miko

  2. April 6, 2009 at 6:52 pm

    Judith –

    You and I have seen this story a number of times (Apollo, DEC, Digital, Silicon Graphics, etc). Great hardware platform innovators seem to run out of juice after 10 years or so. Without strong services and software businesses, computer platform vendors can’t remain independent for long.

    – chris

  3. Sun Positive
    April 7, 2009 at 10:32 pm

    Judith,

    I can see all your reasons for doubt about Sun, and there is clearly no doubt about it’s past ability to steer. However, Sun has several things going for it. A loyal customer base that has seen value from Sun consistently (Like Apple), Innovators that continue to deliver – ZFS, OpenSolaris, OpenStorage, DTrace, Glassfish, Idenitity, Servers with unique and very competitive features over the competition, and much more “under the hood” (Like Apple). With these features the right leadership and the ability to market and sell Sun can be another Apple. Sun has been doing right by employees and is a bit late in making the corrections to improve the bottom line. Those correction now happening can make the difference.

    • April 8, 2009 at 12:44 pm

      Optimism is a wonderful thing but I am not sure that your analogy holds up. First, Sun has figured out a way to monetize its IP through its sophisticated operating system and its various devices. Apple’s risk is that it prices itself out of the reach of the average consumer. Sun, on the other hand, seems to have gone out of its way not to monetize its IP. You mention many of the good technologies that the company has purchased over time. No one can argue with that. However, Sun currently does not have a strong leadership role in the industry. It has Java but given the importance of Java in the market, it has not figured out how to make significant revenue from it. It has significant software assets but it has not provided them to customers in a package that differentiates it from the market.

  4. April 8, 2009 at 4:07 pm

    Judith,

    I disagree with many of your comments and I don’t believe you fully understand Sun’s innovative products and the massive impact its having on the internet.

    Maybe that is indeeds Suns biggest problem-poor marketing and marketing leadership and why so many analysts and press make comments and claims based on perception and not reality. Its too easy to restate what someone else has said than verify the facts and make your own analysis.

    Heres my reasons why:

    You state:
    “Sun Microsystems will have trouble regaining hardware leadership.”

    This is a flawed statement and shows lack of understanding of Sun’s various hardware and its marketshare. Sun sells many types of hardware and so just using the generic term is wrong and misleading.

    Sun sells Intel and AMD based x86, SPARC64, SPARC CMT, Storage hardware products and many of these products are #1 in marketshare.

    Sun has been #1 in Unix server (hardware) marketshare with approximately 50% marketshare for last 5+ years. This is clearly SPARC based servers and with Sun’s latest CMT servers, there are few competitors that can compete directly. Just look at the revenue ramp for last 2 years.

    Sun’s SPARC64 servers, announced just 2 years ago, has increased marketshare considerably and leads in many marketshare categories.

    “While it has some reasonable hardware assets, it is not big enough to take on HP”

    While HP has a strong x86 business with Proliant (thanks to Compaq), HP’s business critical server business has taken a beating since eoling Alpha and PA-RISC servers and Itanium has not been able to recover those losses. Although Sun may be ranked behind HP in x86 servers, Sun has competed very well against HP’s RISC and EPIC based systems.

    What you don’t realize is that HP’s primary revenue depends on printers and printer paper not on servers-just look at the % breakdown.

    ” or the emergence of Cisco as a hardware players”

    Cisco is currently a new entrant into selling servers. It remains to be seen how much marketshare it can grab, considering its proprietary blade solutions. Being #1 in networking does not necessarily mean you’ll be #1 in servers.

    “Even companies like Google and Amazon play an important role in hardware — in the commodity relm.”

    -Commodity is just that-commodity-where only price matters. Innovation is considered overhead and if its good enough, its commodity. But theres more to hardware than commodity. Just ask IBM about its mainframe business or Intels Itanium business. Clearly commodity doesnt address all customers IT requirements.

    “2. While it owns some impressive software assets that it has bought over the past decade, Sun has never learned to leverage these assets to propel it into a leadership role.”

    You haven’t look at the massive OEM and ISV adoption of Solaris have you? Solaris is leaping forward in adoption at an incredible rate and the OEMing by ALL Tier 1 vendors is proof that Solaris is here for the long term.

    MySQL, Glassfish, Java, etc are all industry leading software

    3. Is there a single area of technology where Sun can innovate and out shine its competitors? I imagine there might be some hidden jewels that are transformational and will turn the market upside down inside Sun — but I doubt it.

    Solaris is Sun’s crown jewel. You wait and see what happens once all the CPU makers start shipping 8-core CPUs and windows nor Linux is capable of leveraging them. Solaris is the only viable OS that scales to massive # of threads as its been running on SMP servers for over 10 years. Read the Gartner articles about the OS becoming the challenge to leverage these multicore chips. Sun’s T5440 is proof that Solaris can scale to massive levels. The problem is getting the word out. As I said earlier, Sun marketing is the problem-not its products!

    So please, instead of bashing an innovative company like Sun that has done nothing but good to the IT community for over 20 years, give it praise for its technologies and pass it on!

    • April 8, 2009 at 4:33 pm

      I certainly appreciate the innovative technology that Sun has brought to market. In fact, with this much technology innovation the company should be a leader. I am not sure that time is on Sun’s side, however.

  1. April 12, 2009 at 8:33 pm

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