Sun's Yen Announces New Strategy To Gain Back Market Share

David Yen, Sun's executive vice president for scalable systems, says the technology, including its Niagara processor, is slated for release sometime next year and will be key to distinguishing its high-end technology from its competitors'.

"We believe we are going to redefine the price/performance and the power," Yen said in an interview with CRN. "We are not talking about some additional 20 percent or 30 percent or two-time performance [increase]. We are talking about orders of magnitude. It's not just a competitive thing, it's a necessary thing."

Under pressure from other vendors that have been shipping servers based on Intel's Itanium 2 processor, as well as other RISC-based systems, Sun last year forged an alliance with chip maker Advanced Micro Devices and has begun shipping systems based on less-expensive, x86-based processors.

However, the largest portion of Sun's corporate revenue still comes from servers based on its proprietary UltraSPARC and SPARC processors and Solaris operating system, a platform that has been seeing market-share erosion.

Sun's Niagara processor will be its first built with a 90-nanometer manufacturing process and is designed with 32 threads, an increase from the dual-threaded capabilities of the current processor, Gemini. "In the enterprise class, with the high-end SPARC, there is still a place for that," said Norman Shockley, a former Sun partner who is now president of Adeara, a Sunnyvale, Calif.-based Hewlett-Packard solution provider. "Sun's putting so much effort into the Opteron space because customers have been moving away in droves. ... So many of our previous customers have just moved away from Solaris and SPARC because of the [lower] cost of the Opteron and the Linux-based alternatives. Their licensing costs have gone way down."

Market data supports Shockley's comments. According to CRN's Monthly Solution Provider survey, the percentage of solution providers listing Sun's Unix-based servers as their best-selling servers has steadily dropped over the past year. Between September 2003 and September 2004, for example, Sun's share of the Unix server market in the channel dropped from 24 percent to 14 percent.

During that time, HP, IBM and white-box systems all saw measurable gains in channel market share. Yen and other Sun executives, though, say they have reason to believe those numbers will begin to reverse. In addition to its growing AMD-based business and its Niagara technology, Sun is also establishing what amounts to a new on-demand model. The model, the company said, will be based on Sun's N1 Grid program and will charge customers $1 per CPU, per hour for use of the grid.

In addition, the company has begun preparing solution providers for a strategy in which the Santa Clara, Calif.-based company will sell its hardware on a margin-negative basis to win back business. Sun executives did not clarify whether the com- pany's Niagara-based systems will be rolled out under a margin-negative basis, but Yen suggested the company is not undervaluing the impact of its Unix-RISC business on the bottom line.

"The bulk of our product revenue comes from our bread-and-butter SPARC/Solaris-based systems," Yen said. At least one market has responded positively since Sun began trumpeting its plans to aggressively fight to win back market share. Shares of Sun stock on Wall Street have risen by about 50 percent since midsummer.

New, high-end, high-performing and, perhaps, high-margin hardware could be a welcome addition to a solution provider channel that has seen margin erosion stripped down to record lows with more expected.

"The deals have all gotten so skinny," Shockley said. "The margins are down in the low, low areas."