Sun’s troubles are coming home to roost, thanks to McNealy’s failure to give up Solaris on SPARC and embrace Linux on Intel.
Let me say up front that I have a love-hate relationship with Sun. I love its operating system. I really like Java. And, I like the SPARC architecture. But I hate the way Sun constantly reworks its Linux and open source stance. I really dislike the way it keeps vexing its Java partners. Get over it, McNealy: You cant base a successful business plan on selling Solaris on SPARC anymore. In fact, you havent been able to do that for years now.
You put all those negatives together, and its not too hard to see why Sun has been in a long slump. For some reason, some people still think that Sun is not only holding its own as a server company, but its actually leading the server market.
I dont know what these folks have been smoking! In the latest IDC server report, its IBM by a neck at 30.1 percent over HP with its 27.7 percent. Sun? Its revenues have dropped by 19 percent quarter to quarter since last year, and their market share is now at 13.percent.
Dan Kusnetzky, IDC vice president for system software research, tells me that in 2000, Suns Unix business was bringing in roughtly a billion dollars, but in two years time, it was down to $685 million. Thats a heck of a decline.
Where were its customers going? At the low end— where the real losses were happening—they were heading to Windows and Linux on Intel boxes. Kusnetzky also tells me that while Sun is doing OK on the high-end, Sun faces fiecer competition than ever from HP and IBM. And that IBMs mainframes (running multiple Linux virtual machines) have been taking business away from Sun. At this rate Dell (no ones idea of a server leader) will be ahead of Sun by next year.
Thats presuming, of course, that Sun is around next year. Yes, Im serious. All of Suns bad mistakes are catching up with it. The stock, as open-source leader Eric Raymond points out, is moving down to junk-bond levels. At less than $5 a share (it is currently at $3.20), Sun is at a price from which companies seldom ever rebound to profitability.
It also doesn’t require a financial genius to see that a company that takes a billion-dollar-plus charge on a single quarter is in trouble.
Neither I nor Mr. Raymond is a stock expert. But Merrill Lynch global technology strategist Steven Milunovich is one. In a letter to Sun CEO Scott McNealy and his board of directors, Milunovich told them, “On its current course, we believe Sun is likely to suffer further shares and financial losses, become irrelevant to most users, and eventually be acquired for its installed base.” Milunovichs fix? He wants Sun to cut 5,000 to 7,000 jobs and get rid of its SPARC, Mad Hatter and Java product lines.
Right! Like anything (except the job cuts) is going to happen.
You see, Sun’s biggest problem is that in its heart of hearts, it really thinks its a hardware company. SPARC has been, is now and always will be Suns main focus, so long as McNealy is in charge.
Eeverything else is secondary. Thats how Sun can make blunders such as admitting that it has no Linux policy. Its how McNealy, head of the company that produces the Linux-based Mad Hatter (now misleadingly named the Java Desktop System) can say that those very same Linux users will receive no indemnification from Sun for possible legal action by the SCO group. (This, from the company that made such a fuss about offering indemnification!)
The truth of the matter is that Sun has never liked Linux. And why should it? Linux has been stealing Solaris business.
In fact, Sun is actively working against Linux. Sun signed a deal with SCO in February that, in theory, gave Sun more rights to the Unix source code (specifically, some SVR4 driver code). In practice, it gave SCO the money it needed to launch its suit against IBM on March 6. According to SCOs Sept. 15 10-Q filing, Sun has paid at least $2.5 million to SCO so far this year, and it will pay SCO another two-and-a-half million bucks come November. Also in February, Sun picked up the option of buying as many as 210,000 shares of SCO stock at $1.83 per share. That works out to about a 1.5 percent stake in SCO.
Still think Sun is really working with Linux? I dont, and I dont care how many Linux-based initatives or Linux distribution partnerships it announces.
Sun could have made a fight of it with Solaris on Intel, but despite bringing it back from the dead, Sun hasnt done a thing to market Solaris on Intel. It used to be a loss leader for Solaris on SPARC; now its not even that.
Why hasnt Sun pushed Solaris on Intel? Because like Linux, Sun sees any operating system on Intel as hurting its SPARC business. They’re right. The problem behind the problem is that Sun still thinks that selling SPARC is viable business plan.
When you get right down to it, no matter what Sun says and does, it will always be pro-SPARC—and anti-Linux. And thats a pity because Suns failure really to move to Linux or Solaris on Intel is going to bring the company down.
Don’t buy it? Look again at who’s Number One and Two on the IDC server list: IBM and HP. What do they have in common? They truly embraced Linux. Sun didn’t. Its as simple as that.
This story was first published in eWEEK