CRN Interview: Rich Severa, Arrow Electronics/MOCA

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Rich Severa, president of MOCA, Arrow Electronics' Sun Microsystems-focused division, recently spoke with CRN Distribution Editor Scott Campbell about business, Jonathan Schwartz's promotion at Sun and where the Sun channel is heading. The following excerpts are from that conversation.

CRN: How is your Sun business doing?

Severa: We continue to be flourishing in terms of sales growth and market share gain. We have been the beneficiary of a change at Sun from less direct business, to a more deliberate channel model that highlights partners and resellers involved in the Sun hardware and software transactions with their End Users. We now have 11 consecutive quarters of sales revenue growth, compared to the same quarter of the previous year.

In the last four or five quarters, sales growth has really accelerated. We're clearly in a recovery. Sun hasn't yet participated in the recovery. Their issues have been more self-inflicted during the last 3 or 4 quarters than economy driven. Clearly IT spending is up. That is benefiting all segments. Companies not doing well have more internal issues that compete with available market demand.

CRN: Jonathan Schwartz was recently named president and COO of Sun. Will his promotion help or hinder the channel?

Severa: I'm hopeful about the promotion of Schwartz to COO. His first actions indicate that Sun is serious about getting to a break-even point and posting an operating profit again. We've had a couple of private sessions with him, and been favorably impressed. His longevity in that chair has to do with how quickly he can deliver positive operating results. We wish him well.
It's a company that's bragged about cash generation while producing operating losses for too long in our opinion. He said some things about leading with software, about commoditizing hardware and opening the source code for Solaris and moving towards a utility model, pay as you go. Some of that is extraordinarily controversial and we think premature and may not be indicative of where the market is heading in the long run. Some of the things he says, particularly on the software side, represent only one side of the argument. We have a nice software business ourselves and talking to those vendor's CEOs, their views are not unanimous by any means in favor of utility computing. Sun has to have the ability to deal with its internal demons. When you're a company with contrarian intellectual property, you have to post operating profits to give the intended market the confidence and impetus to try your IP.

CRN: Is Schwartz the right person for the job?

Severa: He understands that the channel is the low-cost provider of high customer service and integration of technologies and products for the same end-user target base that Sun has. They will never have a large enough sales organization again to be all and do all. The channel is uniquely focused on Sun's value add and has been so historically. The channel enhances their ability to get to a sustainable break-even point. It has to do with leveraging indirect operating expenses, whether its outsourcing for internal processes or an indirect selling model, he gets that, in a way that even McNealy does not. Of all guys previously sitting in that Sun COO chair, he's come into the job understanding that without many qualms or misgivings.

CRN: You've mentioned your growth rate has increased 11 quarters in a row. Can you provide more detail?

Severa: Our growth rates the last four or five quarters are north of 30 percent. Two years ago, the federal government was leading the growth and commercial was a laggard. In the last four quarters, the public sector still is strong, but commercial has come back to life. Within that context, it's the enterprise boxes that are going through a renaissance. We've always done well with volume products, but Sun is a big box company. We had one of our largest months in history selling the E15000 in the month of May and have had good strength across the full server segment.

CRN: Is Sun gaining market share from IBM or HP or is the overall market growing?

Severa: Sun's classic installed base, which sat on its hands from a procurement point of view the last 2+ years, is buying again. I don't know if Sun lost market share to their competitors as much as end users just weren't buying any capital equipment. Now Sun is better positioned at the volume end with Opteron and Linux running on low-end servers. All those things are better positioned than the last couple of years for Sun.

CRN: What areas of Sun are not growing as fast as servers?

Severa: Areas that still need more attention are storage, particularly network attached storage where they don't really have a product offering. They do on the low end and also at the high end, with Hitachi, but the 9900 is getting long in the tooth, and will get revved from Hitachi later this year. The mid-segment, NAS in particular is a large opportunity, Sun has not been competitive there.

On the software side, there's still a lot of controversy. The [Java Enterprise Software] stack and the related economic model at $100 per user, per year, is somewhat threatening to many end users. It really challenges the way they have bought and supported enterprise wide software applications. Schwartz says people would rather have interoperability than best of breed. That may ultimately be true, but it's not the consensus that we see today. People expect best of breed. The idea of trading that for interoperability has not been validated yet. End users expect the various applications to all work together. It's the same with subscription vs. licenses. Ultimately that's maybe what the model evolves to. That argument goes best with the CFO, not the CIO. CFOs aren't making the IT calls about which applications are selected.

CRN: Tech Data was recently authorized for the JES stack. Has their business had an impact on you or customers?

Severa: Tech Data is used to having vendors play larger roles in demand creation. With Sun, especially in the enterprise, it doesn't happen that way. Distributors working with solution providers are integral for demand creation. It's not a model Tech Data offers resellers. CDW is doing well in the install base accounts they sell into, but people don't think CDW is synonymous with buying enterprise class server products with Sun's brand. I can't tell you our sales have been impacted at all.

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