New UltraSparc outsells older Sun CPU

"In the past quarter, for the first time, we are shipping more UltraSparc III than UltraSparc II," said John Shoemaker, Sun's executive vice president for computing systems, in a presentation at Sun's headquarters Wednesday. The company plans to officially announce the milestone Friday during a conference call dealing with its financial results for the second quarter of fiscal 2002, he said.

The UltraSparc III chip, designed by Sun but built by Texas Instruments, is a crucial part of Sun's plans. It's used in systems with more modern, reliable hardware and software. Such systems make up the foundation for Sun plans such as helping to maintain customer computers or simplifying the global inventorying of spare parts.

Sun has 1,300 engineers working on the UltraSparc line, making the chip-design effort second in size only to Intel's, Shoemaker said.

Sun has been punished by the recession, in particular because of "gray market" sales of used Sun equipment left over from expired Internet companies. But Chief Operating Officer Ed Zander adopted an optimistic tone about the company's future.

Unless the economy gets worse--a situation Zander said is hard to imagine--the last round of layoffs will be sufficient to deal with the current economic travails, he said.

"When we did this RIF (reduction in force), which was very painful because it was the first, we looked at the economy and said, 'This is it. We want to do one and one only,'" Zander said.

"Some people pushed us and said do more because we can get to profitability faster," Zander said. But Sun is happy with its research and field personnel, he said, and "so we said we'll take an extra quarter" to reach profitability--planned for the second calendar quarter of 2002.

Sun long has withstood pressure from Intel, Microsoft and their allies, none of whom have been able to make much headway in the market for high-end servers. Still, the company faces keen competition. High-end servers are computers that handle network jobs such as logging purchases at a department store, reminding a car-maintenance franchise to send out oil-change coupons or balancing a bank's accounts.

Sun actively lobbies against Microsoft's practices, which United States courts have deemed violate antitrust laws, but Zander said his company can't rely on government policing or punishment to deal with Microsoft's monopoly.

"I think you've got to beat them with product at the end of the day," Zander said. IBM squashed mainframe competitors such as Sperry, Univac and NCR, but it was new products--the "minicomputers" from Digital Equipment, Data General and others that broke IBM's market lock, he said.

To defeat Microsoft, Sun is counting on its computers, its software products such as Java, and its alliances with content, telecommunications and consumer-products companies, Zander said.

While Windows servers provide some competition at the low end of the server market, Sun's real threat is from IBM, which also has high-end multimillion-dollar servers. Shoemaker derided a central plank in IBM's server strategy: Linux.

Linux is a clone of the venerable but complicated Unix operating system, of which Sun's Solaris is one of several "flavors." Linux, unlike the proprietary Unix, is developed under an open-source license, which permits anyone to see and modify the underlying programming instructions. Linux is developed by volunteers and several allied companies.

IBM is spreading Linux across its four major server lines in an effort to make it easier to run software across the different systems and to tap into programmer enthusiasm for Linux.

Sun, though, accused IBM of ultimately trying to control Linux.

"You can't put a billion (dollars) into Linux development without hijacking and owning it," Shoemaker said.

IBM is "making a lot of investments consistent with moving Linux to a more proprietary base," added Steve MacKay, chief architect in Sun's computer group.

Sun also distinguished itself from IBM in light of its services business, which is more limited than IBM Global Services, an outfit that can tackle just about any job in the computing universe.

Sun relies on partners for tasks such as figuring out how to restructure businesses around complex new software or taking over the operation of customers' computing centers. Currently Sun gets about 20 percent of its revenue from service operations, said Jeff O'Neal, director of the company's 3,000-person Professional Services Group.

But services will never be Sun's emphasis, Zander said, refusing to buckle under pressure from people pleased that IBM's services operation has grown while most technology businesses have shrunk.

"I'll take revenue where I can get it, but that's not where we're taking the company. This is a products company," Zander said. Services aren't a great businesses because they have low profit margins and require lots of employees, he said. Indeed, O'Neal said Sun's services group has 12,000 employees, more than 30 percent of Sun's 39,000 total work force.