Sun: We've turned over a new leaf

After the dot-com bubble burst, COO Jonathan Schwartz said, Sun wasn't able to supply what customers wanted--servers using Intel processors and products that work with Microsoft software and IBM mainframes.

"You came a-knockin', and we didn't have much to deliver," Schwartz told attendees at its quarterly product launch event here Tuesday. "We didn't listen. What's a great way to get our attention? Direct your purchase orders to someone else."

Now that's changed, Schwartz said. The company was punished by three straight years of revenue decline, but in its most recent quarter, it returned to growth.

At the event, Sun announced a host of products and plans to try to seize the initiative from competitors, including IBM, Dell and Red Hat, that have gained customers at the expense of the Santa Clara, Calif.-based server and software company. Among the new items: a plan to sell computing power for $1 per processor per hour; round-the-clock technical support for the Linux open-source operating; the new StorEdge 6920 midrange storage system; and a promotion that gives customers credits of between $560 and $1,250 for trading in servers with Intel Xeon processors for Sun servers with Advanced Micro Devices' Opteron chips.

Schwartz wasn't the only one with a mea culpa. In an online chat on Tuesday, Chief Executive Scott McNealy accepted responsibility for not promoting Solaris on x86 servers, saying it took efforts from Schwartz and Chief Technology Officer Greg Papadopoulos to undo the damage. "I take the blame for not driving it sooner, and I give Jonathan and Greg credit for making Solaris on x86 a committed part of our strategy," McNealy said.

Customers at the event were listening to the sales pitch, but Sun will have to prove the value of its products. "What we really want to see from Sun is innovation. But price has increasingly become more important to us, too," said one vice president-level computing executive at a large Wall Street financial firm, who wished to remain unnamed. "We can't afford to implement bleeding-edge technology anymore. We've got to go back to basics and buy things based on performance and cost."

Spirited comeback
Sun is displaying some of its old competitive spirit, said Clay Ryder, an analyst at The Sageza Group. "Sun has done best when facing adversity," he said. With too much success, as in the late 1990s, "They get fat, dumb and complacent."

Sun suffered at the hands of Linux, which in combination with Intel servers came in at less than the prices of Sun's Unix servers. But with Sun now heavily promoting its Solaris operating system on the x86 servers that use Intel and AMD chips, it's hoping to turn the tables.

"The evolution of Linux happened at the expense of Sun. It's now a farming ground. It's more market opportunity for us to go after," Schwartz said.

Sun has a partnership with Red Hat, the top Linux seller, but Schwartz was clear that the company's priority is its Solaris operating system. "We are absolutely targeting Red Hat specifically" as a competitor, Schwartz said.

The server industry's rush to embrace Linux today mirrors the rush to take up Windows NT a decade ago. But that embrace proved fatal then and will do so again, Schwartz predicted. "The companies that adopted it (fell) into a sea of undifferentiated resellers and vanished," he said.

A better solution, in Sun's opinion: Run Linux applications directly on Solaris, a feature that's expected to appear in the x86 version of Solaris 10 by the end of the year.

"Why spend all of the money when you can get Solaris to run your Linux apps so much better and lower cost?" McNealy argued. "Try it on one of our new Opteron boxes. If you don't like it, our boxes are certified to run Red Hat. Just send them a big check, and away you go."

Sun is smart to take on Red Hat rather than the broad and amorphous open-source programming community that collectively creates Linux, Illuminata analyst Gordon Haff said. "Schwartz is absolutely right when he says it's easier to compete against the Linux product than the Linux ideal," he said.

And Linux isn't perfect. "I'd say the quality of vendor support for Linux could definitely be improved," the Wall Street executive said.

Sun has a major challenge when it comes to making the x86 version of Solaris useful. Although it has coaxed more than 700 software companies into supporting Solaris-x86, and although 249 x86 server models are now certified to run Solaris, getting customers to follow suit and use the operating system is another matter. About 70 percent to 80 percent of Sun's Opteron servers ship with Linux, Sun said in August.

Sun also has a long way to catch up to the three giants of the x86 server market: Hewlett-Packard, Dell and IBM. Roughly 1 million x86 servers sell each quarter, said IDC analyst Vernon Turner, but in the most recent quarter, less than 40,000 of those used AMD chips such as Opteron. And the x86 version of Solaris is "not a large blip on the radar screen just yet," he said.

One advantage Linux has over Solaris is that many server makers install, support and promote the open-source operating system, whereas Solaris, for the most part, appears only on Sun and Fujitsu machines. Sun hopes that Solaris will be more widely used when it becomes open-source in version 10 at the end of 2004--but some believe that, too, could prove challenging.

"I don't think they're going to overtake Linux. Linux already has the hearts and minds" of open-source programmers, Sagaza's Ryder said. "Solaris is branded by Sun, and there's a certain amount of baggage that goes with it."