Sun relaunches Sparc chip business

David Yen, currently executive vice president of storage but previously in charge of Sun's Sparc work, will lead the new group and retain his executive VP status, the company said Thursday. Jon Benson, a vice president of engineering who joined Sun through its acquisition of Storage Technology in 2005, is the new executive VP of storage.

The move is the latest rejiggering of the Santa Clara, Calif.-based company's hardware business.

"It's not just Hollywood that does sequels anymore," said Insight 64 analyst Nathan Brookwood.

In the 1990s, the company's Sun Microelectronics unit sold its chips internally to Sun itself and externally to others that built servers around them, but the company eventually retrenched so it was the sole customer of its Sparc chips.

The move reflects the philosophy of Chief Executive Jonathan Schwartz, who enjoys seeing Sun technology used in conjunction with competitors' products. For example, the company often gives higher commissions to salespeople who sell Sun's Solaris operating system for use on rivals' servers than for use on its own machines, and the company has embraced other operating systems on its own servers.

"Sun's innovations have value and appeal beyond our own servers and storage products," Schwartz said in a statement. "As with our software, decoupling our silicon from a strict reliance on Sun's systems raises our profile and opportunity globally."

The bulk of the business will be internal sales to Sun's server group, Yen said in an interview. Beyond that, the most likely customers are those with embedded computing systems such as network gear, where users typically don't see the inner workings of hardware and software.

"That's the easier market to penetrate," Yen said of embedded computing, and the company plans to announce external customers in coming weeks. Even so, "I don't think in the next couple years we'll come close to the magnitude of internal sales."

Sun Microelectronics also will sell other silicon products for networking and cryptography, Yen said, as well as some design services.

The company would like to sell its Sparc chips to other server makers, Yen said, but that's a tougher nut to crack. Among the other members of the top four server makers, IBM already has its Power family of chips, Hewlett-Packard the Intel's Itanium that it co-developed, and Dell sells only servers using only x86 processors such as Intel's Xeon and Advanced Micro Devices' Opteron.

Sun's change is mostly one of internal accounting, but there are some risks, Brookwood said. "The danger here is that they lose some of that tight coupling" between the system designers and chip designers, he said. That was a major problem years ago during the UltraSparc III launch.

Sun's 1990s corporate structure divided the company into separate business units it called planets, and microelectronics was one of those planets. But the business unit couldn't sell much outside the company when Sparc chip performance began lagging competitors' products, Yen said.

"When the Sparc processor fell significantly behind in performance and features, all bets are off," Yen said.

Sun reorganized with the goal of finding good designs for its server group. "We believe we have accomplished the first phase," Yen said. Now it's time to expand to accommodate others' desires. "If all Intel did is sell to Dell's needs, they probably would not be as successful as for today's needs," Yen said.

Establishing the Sparc group as separate is designed in part to assure outside buyers that Sun itself won't have an inside advantage, Sun said.

Sun has returned to revenue growth and profitability after years of post-dot-com financial struggles. The company still faces IBM and HP as strong server competitors, though, and Tuesday's move indicates the company still is working on finding the right organizational structure and strategy.

The Sparc group remained separate for some years after Sun stopped selling the chips externally. But in 2004, shortly after Schwartz was promoted to chief operating officer, he merged the Sparc chip group led by Yen with the Sparc server group, putting Yen in charge. After Schwartz was named chief executive, he put the entire server group under John Fowler, who earlier had led just the x86 server business, and moved Yen to storage.

Part of Sun's restored fortunes came because its UltraSparc IV+ systems have enjoyed greater than expected sales at the same time that new products using the UltraSparc T1 "Niagara" processor now supply significant revenue. The company plans to release Niagara 2 systems in the second half of 2007 and higher-end cousins using the "Rock" chip in the second half of 2008.

Texas Instruments builds Sun's chips. Fujitsu also designs and builds its own Sparc chips, and it and Sun will jointly sell a new generation in servers called the Advanced Product Line beginning the first half of 2007.

Another change coming with the new shift is that the new Sun Fire X4500 "Thumper" system, which combines dual AMD Athlon processors with as much as 24 terabytes of storage in a compact chassis, is being moved out of the storage group and into the server group.

Sun has struggled for years to build a strong storage business, and Tuesday's move indicates another change of course for the company. Benson will oversee tape and archive products as well as those that employ storage area networks, a higher end class of networked storage. Fowler will oversee products involving network-attached storage.

The storage move fragments Sun's storage work, said Illuminata analyst John Webster. "Frankly, I'm surprised, and I'm wondering how they will now present storage as a coherent set of products," he said.