Sun Microsystems Moving In the Right Direction

After two quarters of solid sales growth, fueled by x86 and Sparc servers and an open source version of its Solaris operating system, Schwartz thinks the answer is now clear. "The proprietary and expensive moniker is now dead," Schwartz wrote on his blog last month. "Dead dead dead." And there's this significant factoid to back him up: Sun recently bumped Dell out of the No. 3 spot in server sales, behind IBM and Hewlett-Packard.

Schwartz this week will unveil a number of products on the turf of its most important customer base: Wall Street, whose big, demanding tech organizations will determine how long Sun's rebound lasts. Among the advances Sun will tout: faster processors and increased memory in its midrange UltraSparc IIIi server line; servers equipped with Advanced Micro Devices' most recent Opteron processors; and encrypted tape storage on the acquired StorageTek platform. Sun also is incorporating the multicore UltraSparc T1-based processor platform into its Netra systems for telecom carriers.

The offerings demonstrate the growing breadth of Sun's product line, which once showed gaps despite the company's big R&D investments and touted innovations. "We went through a period when we didn't have a new product portfolio," acknowledges John Fowler, executive VP of Sun's systems group. "There was a lot of skepticism."

Still High on High End
Sun is on pace to sell $500 million in AMD-based servers this year, though customers are still buying lots of UltraSparc servers for top performance. The new products and the pilgrimage to Wall Street show that while Schwartz fights the "expensive" label, Sun isn't retreating from the computing high end.

At the High Performance Computing Virtual Laboratory, a computing grid used by a consortium of Canadian universities, Sun systems have helped boost performance by 500%. The lab chose six Sun servers with the latest UltraSparc IV+ processors, three with new UltraSparc IIIi processors, and one with a multicore UltraSparc T1 for a new data center. Sun beat out IBM and Silicon Graphics because it provided the lowest cost for performance once power and maintenance were factored in, lab executive director Ken Edgecombe says.

Sun also is building on last year's $4.1 billion acquisition of StorageTek. By adding data encryption to the StorageTek T10000 tape drive system, Sun keeps pace with IBM, which last week said it will add encryption to its enterprise-class storage drives. Sun plans to add encryption to its T9840 tape-drive system by the middle of next year.

Sun pulled off a surprise last month when it passed Dell--a company built around selling inexpensive, industry-standard computers--to become the third-largest server provider in the world, according to IDC. Sun's server revenue grew 15% in the second quarter compared with the year-earlier period. Nathan Brookwood, an analyst with Insight 64, attributes Sun's success to a broader, more-open product line that appeals to more buyers. "People used to ask why Sun spent so much money on R&D and why didn't they become more like Dell," Brookwood says. "Now people are asking why Dell doesn't do more innovative things."

Sun's gains are partly the result of strategies initiated more than four years ago, when the company began developing the UltraSparc T1. Sun's ability to deliver high performance while reducing power consumption is what appealed to David Schairer, CTO of Concentric, a hosted application service provider that recently moved to the UltraSparc T1-based T2000 servers. The UltraSparc T1 comes with up to eight processor cores, each with four independent threads, providing a total of 32 processing elements per processor. Sun plans a second-generation UltraSparc T1 that will have eight cores with eight threads each.

The telecom industry is another key proving ground for Sun. The Netra T2000 is based on Sun's UltraSparc T1 servers, which have generated more than $100 million in revenue since they were introduced a year ago. The Netra T2000 is a "mirror image" of the standard T2000, with certifications to meet telecom requirements.

Shortly after Sun began developing UltraSparc T1, it launched a broad line of x86 servers using AMD chips. Sun's future may hinge more on AMD's processor technology than its own, though Sparc systems continue to account for about 90% of the company's server sales. Some customers still view UltraSparc as too pricey. In the past few years, Sun has seen some of its Wall Street customers migrate to commodity Linux servers from other vendors. Sun has been fighting back with its Opteron line.

Intel's introduction of the Woodcrest platform for one- and two-processor servers pushed Intel back into x86 performance leadership, according to some benchmarks. AMD answered recently with Rev F versions of its Opteron processors that increase performance using so-called Double Data Rate 2 memory and built-in virtualization. Graham Lovell, senior director of Sun x64 systems, says the company just began shipping one- and two-processor servers using the Rev F and will extend its use to all its x86-based servers through the remainder of the year.

Oh, Those Financials
While business is looking up for Sun, its financials are still lackluster. The company reported 18% higher revenue for the fiscal year ended June 30, but it posted a net loss of $864 million for the year and $301 million for the fourth quarter. Restructuring and acquisition costs were partly to blame.

The balancing act of reducing costs versus funding innovation goes on. Sun expects to cut up to 5,000 jobs in fiscal 2007, which began in July. Schwartz, in his blog, writes that cutting corners on components and selling lower-priced products don't "matter as much as delivering value and innovation."

Too many IT buyers still think of Sun as the high-priced alternative--even as it sheds the proprietary label. Perceptions die hard.