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SUN MICROSYSTEMS
ISSUE What should be the Sun's product portfolio (or product mix) given the current environmental conditions and competition?
SUGGESTION
Sun should change its image from server maker to solution provider including hardware, software and services and look for partners if something is missing in the value chain. Sun should focus on low-end servers and Linux. Sun should build application to manage the distributed processing and storage power. For Java build the good developer tools.
SUN'S CURRENT PRODUCT PORTFOLIO
1.1 COMPUTER SYSTEMS
High-end Servers UNIX® platform-based systems and incorporates UltraSPARC III microprocessor.
Mid-range Servers UltraSPARC III processor and Solaris Operating System.
Entry server systems & Blade Server Processor architecture (SPARC or x86), form factor (rackable or stand-alone systems) both Solaris and Linux operating systems.
Desktops and Workstations Product line includes 64-bit workstation.
1. SOFTWARE
Solaris Operating System (OS) The Solaris OS for SPARC and x86 platforms.
Java Platform
Java platform application environment allows development of application software independent of the underlying operating system or microprocessor. There are various version of Java Platform Standard, enterprise and Micro (for embedded systems such as PDA, phone etc.) editions.
Sun ONE Developer Platform
Provides a desktop-to-mainframe development and test environment for programming in C, C++ and Java programming languages.
N1™.
N1 software is to allow a data center to work like a single system by combining foundation resources (e.g. servers, storage and network devices) with virtualization, provisioning, policy and automation, and monitoring.
1. NETWORK STORAGE
High-end data storage systems provide a platform for direct attach storage or storage area network (SAN) solutions.
1.4 SERVICES
Sun services team provides support services (support for hardware and software) and Professional and Educational services.
SUN'S NET REVENUES FOR THREE YEARS (dollars in millions)
(Source www.sun.com sun's annual report)
00 Change 00 Change 001Computer Systems products . . . . . . . . . . . . . . . . 6,4 (15.6)% $ 7,6 (40.)% $1,8Network Storage products . . . . . . . . . . . . . . . . . .1,550 (8.7)% 1,67 (5.4)% ,66Products net revenue . . . . . . . . . . . . . . . . . . . . .. 7,7 (14.)% $ ,0 (.4)% $15,015Percentage of total net revenues . . . . . . . . . . . . . 68.% (4.6) pts 7.8% (.5) pts 8.%Support services . . . . . . . . . . . . . . . . . . . . . . . . ..,844 1.1% $ ,58 16.0 % $ ,188Professional and Educational services . . . . . . . . .77 (7.)% 865 (17.4)% 1,047Services net revenue . . . . . . . . . . . . . . . . . . . . . . ,641 7.0 % $ ,40 5. % $ ,5Percentage of total net revenues . . . . . . . . . . . . . .1.8% 4.6 pts 7.% .5 pts 17.7%Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . .$11,44 (8.5)% $1,46 (1.5)% $18,50
SUN AND ITS COMPETITORS REVENUE FOR 00 SECOND QTR
source (http//www.idc.com/getdoc.jhtml?containerId=pr00_08_8_154747)
(Revenues are in Millions)
Q 00 Market Q 00 Market Revenue Growth
Vendor Revenue Share Revenue Share 00/00
IBM $,1 7.7% $,8 0.4% 10.1%
Hewlett-Packard $,5 7.7% $,46 7.7% 0.6%
Sun Microsystems $1,76 16.6% $1,44 1.5% -18.6%
Dell $81 8.4% $80 .% .4%
Fujitsu Siemens $5 .4% $86 .7% 10.64%
Others $1,818 17.% $1,74 16.4% -4.15%
All Vendors $10,57 100.0% $10,616 100.0% 0.17%
4 SUN'S NEW SUGGESTED PRODUCT PORTFOLIO
As we can see Sun's revenue is declining in almost every area except support services. There are various reasons why Sun's revenue is declining. One is that overall external conditions such as downturn in overall market are not favorable. Merrill Lynch analyst Steven Milunovich urged Sun Microsystems's CEO Scott McNealy and the board to cut costs and to focus on core computing (Analyst Urges Job Cuts, New Focus for Sun Micro, Wall Street, Oct. 00). Sun is now perceived as proprietary and expensive (Sun Micro Reports Earning, Troubles Seen Continuing, Wall street Journal, 16th Oct. 00). These all facts directed towards same thing that Sun's current product portfolio is not according to market demands. Even in downturn Sun's competitor's are doing better than Sun, so there is strong requirement to analyze Sun's current product portfolio including hardware, software and services area.
4.1 MORE AGGRESSIVE ON LINUX OPERATING SYSTEM
(http//www.enterprisenetworksandservers.com/monthly/art.php/8) According to IDC, a research firm, in contrast to the Windows and Linux server market, the Unix server market has declined about two fifths of its value, between 000 and 00. By 007, Unix share will drop to 7% and Linux share will increase to 5%. After 5 to 10 years Linux will outperform Unix and will take over Unix in most of the industry.
It is true that one of the Sun's strengths is its reliable, secure and robust Solaris operating system. However, as we can see the IT world is shifting towards cheaper Linux operating systems. The world's developer force and support of big companies like IBM, Oracle is behind Linux. So there will be a time in near future when Linux will out perform the Solaris or any other operating system. In my opinion, Sun is repeating the same mistake what IBM did in the mainframe era. IBM realized the mistake and turned it back to provide the integrated solution, however it missed the PC lead. IBM is no more solely mainframe company.
For IBM, PC and Unix were disruptive technologies. Disruptive innovation introduced by Clayton Christensen in his book, The Innovators Dilemma, provide an excellent way for understanding what the drivers are for change in the server market. According to Christensen, for incumbents, it is very hard to make a case for disruptive technologies because they are far less performing and less revenue making than revenue generating sustaining technologies. However, as soon as disruptive technology outperforms the sustaining technology, clients shift from the old to new technologies. For Unix, Linux is a disruptive innovation.
My suggestion here is that Sun should go and endorse the Linux even if it has Unix lead.
4. MORE FOCUS ON X86 BASED SERVER
SPARC based server are expensive for low end and mid range server. In the high-end server market or RISC based processor, competition was less intense. Competitors were Motorola, IBM, Fujitsu and Apple, not Intel and AMD. Now in 64-bit era, Intel launched new Itanium and Xeon MP processors and AMD launched Opteron microprocessor. Demand for x86 based low-end server and mid range server is increasing because of low cost and good performance. Sun relies on Texas Instruments to build its microprocessor ( www.sun.com annual report) and it outsources its servers to third party. So it is very hard for SUN to beat on price from Intel and AMD. Why sun has to design its own SPARC microprocessor when there are leaders in microprocessor area. Sun should leverage the strength of other companies like Intel.
4. MORE FOCUS ON BLADE SERVERS
(http//www.idc.com/getdoc.jhtml?containerId=pr00_0_11_150000) According to IDC, Server blades are on the cusp of tremendous growth in the market. While they represented only about % of the server unit shipments in Q0, IDC expects more than 7% of all new servers to ship worldwide by 007. Server blades suit the needs of customers with large data centers involving hundreds or thousands of servers. Typical examples would be financial services firms, Internet service providers, e-commerce sites, large banks, and telecommunications companies (http//www.serverbladesummit.com/industrynews/index.asp - hotmarket).
In coming time, computing needs would be more distributed than centralized in one location on big power server. Sun has made its image in telecom and Internet industry. Sun can leverage its customer base to give this solution. Sun should be more focused on providing low-end and mid-range blade servers by focusing on telecom and Internet niche market.
4.4 PARTNERSHIP FOR DESKTOP AND WORKSTATIONS
Sun needs to provide the full solution to its customers, which makes sense. However, why Sun needs to build these desktops/workstations? It can not compete anyway on the price with companies like DELL. In my opinion, Sun should not waste its energy in this, it should look out for strategic partnership with companies like Dell who are expert in this area.
4.5 SUN SHOULD BUILD JAVA TOOLS WHERE THE MONEY IS
(http//servlet.java.sun.com/help/legal_and_licensing) Most of the Java.sun.com products including JEE standard, runtime, enterprise and micro editions are free to download and redistribute with some value addition. Sun's Java effort were to increase its server sale, however, it failed to do so. Java absorbed Sun's revenue and helped competitors like IBM, HP in fight against Microsoft Monopoly. Sun and its partner will spend 500 millions on Java branding like Intel did with Intel inside campaign. McNealy (http//www.bayarea.com/mld/mercurynews/business/606167.htm) insisted that Suns branding campaign would not lead to Sun making Java proprietary in any way. ``Java is like English, he said. ``You dont make money owning English. So why Sun is putting its money in Java standardization. Sun focus should be on building the easy to use Java tools like Microsoft visual studio. So that Java can be easily adopted by developers and generates revenue for SUN which really matters in end.
4.6 DATA STORAGE HARDWARE BY PARTNERSHIP
Sun is a new player in this industry. According to IDC this is again a growing industry as it provides the flexibility to increase and decrease the storage demands based upon the needs. EMC, IBM, Hitachi, and HPQ are the big players in this industry. Sun did a good job in this by making Hitachi a strategic alliance in this and selling its data storage because time to market is crucial thing instead of making its own hardware.
4.7 BE THE LEADER IN MANAGING DISTRIBUTED POWER AND STORAGE UNIT
Sun's vision is "network is computer". That is very good and broad vision according to me. Is Sun diligently focusing on it? I will take this vision as processing power and storage will be more distributed and winner will be the one who can provide hardware as well as great software to manage all these distributed devices virtually. The need that comes out of this is managing this distributed processing power. Ultimately building blades or storage devices would not going to be key differentiation, the key differentiation would be managing these products remotely and seamlessly. There are leaders in storage area, but nobody has full solution to manage these distributed processing power and devices. Sun could lead in this area by providing software to manage the distributed power and other network devices.
4.8 MORE FOCUS ON SERVICES AND CHANGE THE IMAGE TO SOLUTION PROVIDER FROM SERVER PROVIDER
Today's the needs of services has increased and it will be more in the near future as the computing power is penetrating in the nonIT world. Non IT world is looking at the IT industry for solutions because there are so many solutions out there. IT companies can not just throw bits and pieces and say build yourself, these companies need help. Sun can help these customers and can make money on this. Currently Sun revenue for services is very low (7% of total revenue). Sun was providing the customer support not the real services to these companies. Sun has recently become more aggressive in this area by joining third party manufacturers. I have to say that Sun has to become more prominent in this area. HP and IBM are taking the customers by providing the full solutions to the customers. So if Sun left behind in this, it does not matter how good or bad Sun's product portfolio is. Sun should define its niche market and should go after those customer to provide the complete solution.
References
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