The decline of Unix is making Sun
Although the Unix market as a whole has remained flat in a booming year for
computing, Sun remains one of the most explosive companies in the industry.
The company reported record profits of $762 million on sales of $8.6
billion in the fiscal year ending June 30. More product shipped in the last
quarter than any previous quarter while servers sales doubled over the same
quarter the year before.
And while even Sun executives admit that a substantial portion of the
company's growth comes at the expense of other Unix vendors, most analysts
see continued expansion for the company, especially in the server arena.
"The story is in the servers and it very much is the company" said Daniel
Kunstler, senior equity analyst at J.P. Morgan Securities. "They saw the
softness in the workstation market for some time."
In the coming year, the company will strengthen its case against the NT
platform through an expanded product line, increased hiring, and nearly $1
billion in R&D investments, according to Sun's executive team. To hear Sun
tell it, they are the only credible alternative to NT and will gain share
against the Windows world. "We will see a lot of the Unix, X86 architecture
move over to Solaris," said Sun president and CEO Scott McNealy. Recent customer wins include Bosch,
British Telecom, and Nomura. This empire-building, however, will likely
require Sun to seek out additional capital in the coming fiscal year, he
One of the first results of this will be the release of new workgroup
servers as well as software that will allow users to connect their
Sparc/Solaris machines more readily to NT networks.
"Look for workgroup servers in the short term," said McNealy during the
company's conference call to discuss fiscal year earnings. "We will
challenge them on the workgroup servers. On the midrange, we are ahead of
The new servers will be designed for discreet functions, such as acting as
a mail server or a server for small databases, said Ed Zander, president of
the Sun Microsystems Computer Company, Sun's computer arm. Target customers
include enterprise customers with Solaris/Sparc backbone systems who want
complementary midrange servers and small to medium-size companies looking for
packaged systems. This midrange market has traditionally been dominated by
Microsoft (MSFT). The servers, which complement a more limited line of existing
servers, will contain as many as four processors. Faster processors, larger
cache sizes, and clustering capabilities are also on the road map for Sun
In addition, both executives said that Sun will release software in the
near future that will allow such servers, as well as other Sparc/Solaris
equipment, to connect to Wintel networks.
Midrange workgroup servers will not likely provide Sun with the same profits
as their higher-end servers, said analysts. "Traditionally, the smaller
the box the lower the margin," said Jay Stevens, Buckingham Research
Group. Nonetheless, the midrange is a necessary market for the company to
fulfill its mission. "They want to be the full-line Unix provider," he
said. Sun, of course, will also be making improvements at the high end to
stay ahead of Microsoft, Stevens and others said.
Although McNealy and others claimed their products held the technological
high ground, the company faces a challenge in staffing. Simply put, the company
needs more sales people and consultants. "We are going to get better field
coverage," said McNealy. Resellers will also be recruited to penetrate
smaller accounts that cannot be reached by Sun or large, national integrators.
Sun's revenues for the fourth quarter came to $2.5 billion, up 26 percent
from the fourth quarter of fiscal 1996. Fourth-quarter earnings
per share reached an all-time high of 61 cents, compared with the previous
year's earnings per share of 43 cents based on operating income.
For the full 1997 fiscal year, the company posted revenues of $8.6
billion, up over 21 percent compared with $7 billion in the previous
year. Earnings per share for fiscal 1997 came to $1.96, compared with $1.33
unadjusted for the year before.