MOCA President Worries About Double-Dip Recession In Sun Space

The head of the nation's second-largest distributor of Sun goods and solutions, Severa openly questions whether the IT sector is coming out of a recession the way the consumer economy appears to be. Speaking Tuesday at the company's headquarters in Los Angeles during a customer open house that attracted high-level partners, including Data Systems Worldwide and Avcom to name a few, Severa candidly talked about market softness and the potential for a double-dip downturn in the enterprise market segment where Sun plays.

He also expressed concern over Sun's struggle to get in front of momentum achieved by IBM and Microsoft. In particular, he praised newly named IBM CEO Sam Palmisano for recent comments made to partners at IBM's PartnerWorld in February. There, Palmisano made the case that IBM's franchise in IT services could grow dramatically with partners.

"Sam showed he was a partner advocate in a way that [former CEO Lou Gerstner never got close to," Severa says. "I thought some of his remarks were eyebrow-raising."

In particular, he thought IBM's assertion that it could double its share of the IT services market through the use of partners was a bold statement.

"That message has got to resonate with every other manufacturer IBM competes with that says 'The way for me to survive in a market like this is to jettison my partners and take more business direct, or to tolerate large channel conflict,'" Severa says.

In contrast, he says bluntly, Sun's messaging is not as clear.

"Absolutely not," he adds, which frustrates him because he believes Sun still has the strongest channel in the business.

While questions over Sun's long-term product strategy with regard to Linux, SPARC and other initiatives linger, IBM "seems to be sort of holding its own in this economic climate while Sun is still trying to get back to a quarterly profit," he says.

Not surprisingly, concerns over the state of the Sun market remain top of mind for Severa and others. Recent sluggishness has led some to wonder what kind of guidance Sun will give when it next briefs analysts about market conditions. Based on what Severa has seen in the first few months of the year, a sober assessment may be in the offing.

"The calendar year started off rather inauspiciously," says Severa.

The company saw a season spike in the December time frame, which he described as relatively strong. But the hoped-for uptick in the Sun hardware economy simply has yet to materialize, he adds. Whereas he once thought the current quarter would be flat compared to the last quarter, he now suspects that won't happen.

"The demand for big ticket hardware items has slackened noticeably," he says. "My guess is the bigger capital expenditure item is the one the CFO is personally involved in. He or she may be imposing his or her will on the CIO. Their interaction is ground zero right now."

Severa sees more activity in the workgroup and workstation market segments. But these smaller ticket items don't have the price points or the margin to alone restore the viability in the Sun reseller marketplace.

One thing that may help improve conditions in the Sun marketplace: the disappearance of weaker Sun players, which in their desperation to win any business before they went away, offered goods and services at rockbottom process that had a negative impact on overall segment profitability. Already, as many as 80 Sun partners have gone out of the business, been dropped by Sun or sought relief through a merger or sell-out.

Severa says that will help stronger partners who have long-term designs on the Sun market. But he's wary about activity in the low-end, where Insight Services has signed on to play. That company officially became a Volume Channel Provider for Sun in February, joining CDW as a provider of entry-level servers, desktops and appliances to small and midsize businesses in the U.S. It would be significantly challenging to the traditional Sun channel if these two resellers gain access to additional products in the Sun portfolio. Severa suspects that's precisely what these companies want long-term, although today the two resellers have restrictions that limits what they resell.

Looking ahead, Severa hopes Sun can get its arms around its competitive battle with IBM and Microsoft. One way, he suggests, is by improving its strategic position with regards to Linux, which has offered stiff competition to Sun resellers. Inroads by others offering solutions built around Linux on Intel--despite questions pertaining to enterprise scalability--have cut into partner sales of Solaris-based systems.

"I've thought for a long-time that Sun has had a rather diffident attitude about Linux," Severa says. "They viewed Linux as the enemy to Windows so, therefore, they viewed it as their friend, indirectly. I think that was an okay strategy three years ago. But Linux has become in Corporate America, particularly in the workgroup space. And at the higher end, no one else but IBM was talking about how Linux fits into the enterprise. The concern we had was that if Sun did not step into the void around Linux--contributing some of its own source code from Solaris--IBM could do with Linux at the high end to Sun what Microsoft did at the low end with Java a few years ago, which was to hijack an open standard for their own benefit.

"I view Sun's recent Linux moves as a good thing, thus, it's a shot across IBM's bow, just as the deal with Hitachi was a shot across EMC's bow in storage."

A press release without product specs or detailed technology roadmaps will only go so far, he adds, indicating he hopes Sun adds detail to its earlier announcements soon.

"If they can contribute segments of the source code from Solaris, and incorporate that into Linux, and then show some sort of connectivity from an operating systems roadmap that will get you from the mid-range to the enterprise, [then they have an advantage," Severa says. "No other company is even close to describing such a universe."

But to do that, Sun may have to address what it wants to do with SPARC, the company's microprocessor platform. For Sun to make further gains into the enterprise, Severa wonders if Sun would be better off joining those who support Intel, the building block many enterprise customers prefer.