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January 12, 2004 | The temptation to bash Scott McNealy, now that Sun Microsystems' chips are down, is hard to resist. Sun's chairman is, after all, the king of bashers, rarely missing an opportunity to publicly skewer Sun competitors or to boil Microsoft in verbal oil.

Toughness is necessary to survive in the computer industry, and Sun has that in spades, but its public posturing has often felt like unnecessary piling on or plain old PR stunts. The hubris sometimes obscured Sun's many contributions to computer technology (e.g., Java), early insight into key trends (the Internet), and its tremendous organizational strength.

No one denies that Sun's products are rock-solid. When pricey Unix machines still ruled the enterprise server roost, Sun had much to crow about. Its zenith (so far) was 2001 ($18.2-billion revenue, $927-million profit) or 2000 ($15.7-billion revenue, $1.85-billion profit), depending on your preference for sales or profits as an indicator.

Since then, however, Sun's fortunes — like so many in the computer industry — have fallen victim to difficult economic times, the emergence of cheaper high-performance computing platforms (Linux- and Intel-based), and marketplace confusion. Fiscal 2002 losses were $587 million, and 2003 losses totaled $3.4 billion, although Q3 and Q4 showed some improvement. Sun reported a $283-million loss for Q1 2004 (July-September).

Today, Sun is an $11-billion-plus company fighting for its life against competitors that are generally three times or more its size: IBM ($81 billion), HP/Compaq ($73 billion), Dell ($38 billion), Microsoft ($34 billion), and Intel ($26 billion). A lesser foe, SGI, was also dramatically squeezed, shrinking from $2.7 billion in 1999 to $961 million in 2003.

Sun isn't blind to its challenges, and expressed them bluntly in its 2003 annual report: "Our competitors are some of the largest, most successful companies in the world ... we are seeing increased competition and pricing pressures from competitors offering systems running Linux software and other open-source software. In addition, certain of our competitors, including IBM and HP, have financial and human resources and scales that are greater than ours, which increases the competitive pressures we face."

However, Sun's response to adversity, though typically feisty, has been confusing. Lately, it has embraced Linux for low-end servers, while clinging to Solaris at the high end. Its war with Microsoft rages on with the announcement of Project Mad Hatter, a planned Linux desktop offering, and its Sun Ray network computers. Sun declares development of its proprietary Sparc/UltraSparc microprocessors will continue, even as it announced a deal to use AMD's Opteron chips to build x86-compatible machines.

How Sun can sustain so many initiatives is not clear.

The company has dramatically streamlined its software efforts. "One year ago, we had more than 200 different software products, 40 different teams, 40-some different release dates during a year. So Sun went, hmm, this is bad," says Loralyn Mears, Sun's market development group manager, life sciences. "So why don't we stick everybody who works in software into one group, make it unified, and everybody has to release quarterly on just a couple of product lines."

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Read the full interview with Sun's Loralyn Mears at
Bundling virtually everything into the Java enterprise offering was a good move, and the new pricing scheme — $100 per person (in a company) or $50 per person (university or nonprofit), plus $5 per person for a developer license — is breathing new life into Solaris, according to IDC analysts and others.

Now Sun should take an equally hard look at its hardware initiatives. Last year, it spent $1.8 billion in R&D, or 16 percent of its revenue. That's probably what is required to compete in so many market segments, but it's too much for Sun's current fiscal condition.

Sun remains optimistic and aggressive — and that's good. Customers and investors don't want a kinder, gentler Sun. They want a focused strategy they understand, fiercely executed, that rekindles Sun's fire and profits. They want a blowtorch (or two or three), not an immense lava flow, because that's all that Sun's size permits.

For reprints and/or copyright permission, please contact Angela Parsons, 781.972.5467.