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Commentary: Tough times ahead for Unix server vendors

In the wake of Hewlett-Packard's earnings warning, it's clear that Sun Microsystems and other Unix server vendors may face significant challenges in 2001.

In the wake of Hewlett-Packard's earnings warning, it's clear that Sun Microsystems and other Unix server vendors may face significant challenges in 2001.

Sun, in particular, faces a triple threat

See news story:
Sun under the microscope with earnings, new products
to its bottom line: As the leading server vendor for the dot-com industry, the e-commerce slowdown will stymie its growth more than it will slow the growth of its competition.

In addition, traditional brick-and-mortar companies are now cutting back on Net projects, which in turn shrinks Sun's markets. The general economic slowdown is also expected to affect Sun's sales.

A year ago, Sun said the dot-com boom was helping to drive its business. Now, it says the Internet is just a small part of its overall market. Regardless of the percentage of its business dedicated to dot-coms, the current market conditions must be having a negative effect on the company.

While all vendors will be hit by the economic slowdown, the three big Unix server companies--Sun, HP and IBM--are particularly vulnerable, as their systems and services are more expensive than competing Wintel applications from Dell Computer and Compaq Computer.

Even as companies tighten their information technology belts, they probably won't be cutting projects. Instead, they'll look for less expensive ways to build those scheduled projects. For many companies, this will mean choosing a Wintel application.

Windows 2000 on an Intel application lacks the high-end scalability of Unix and is not adequate for all software. It doesn't have the bells and whistles of Solaris or HP-UX. But the software that runs on that application are much less expensive, and in many cases, they are adequate.

For the last year, Sun has also had intermittent reliability problems with its high-end servers. Although it says it has fixed these problems, reports still surface from time to time.

Expect to see these concerns reflected in Sun's financial statements this quarter. Since Sun has not issued any earnings warnings, we expect it to meet its targets and then hint at slower growth or some other news for the future.

Businesses should take advantage of the economic slowdown to pressure vendors for cuts in hardware pricing. Instead of sticking to any one vendor, businesses should choose a product that delivers the features they really need at the best price, rather than buying high-priced products for low-cost applications.

Meta Group analysts William Zachmann, Jack Gold, David Cearley and Val Sribar contributed to this report.

Visit Metagroup.com for more analysis of key IT and e-business issues.

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