Sun to become a black hole warns analyst

Stan Beer
Tuesday, 04 July 2006 10:04

IT Industry - Strategy

A leading Sun Microsystems watcher has warned that high-end server vendor Sun Microsystems is in danger of descending into a downward death spiral of decreasing costs to match decreasing revenues because of a lack of innovative leadership at the organisation. He advises Sun users to consider implementing alternative vendor strategies.
 

Dr Kevin McIsaac a senior analyst at Intelligent Business Research Services (IBRS) says that because of the continued malaise at workstation manufacturer, Sun centric customers should re-examine its status as a preferred or strategic vendor. Dr McIsaac believes Java centric organisations should continue using Java but take advantage of further commoditisation of the Java app server market by considering low cost products such as JBOSS instead of the more expensive JEE platforms. 

According to Dr McIsaac Sun’s problems are a concern for organisations and has to be understood in the context of forces in the IT industry. Dr Kevin McIsaac, who has been keeping tabs on Sun since he headed a Meta Group research team forcussing on the organisation five years ago, says, "Unfortunately Sun’s problems are due to the commoditisation of its core value propositions, SPARC and Solaris, as customers have abandoned these in favour of “good enough” Wintel/Lintel systems.”

Dr McIsacc says, the constant increase in performance and availability of low-cost x32/64 based servers, coupled with robust commodity operating systems (Windows and Linux) have created a platform (Wintel and Lintel) that is good enough for most enterprise customer needs.  The shift from proprietary UNIX/RISC systems to Wintel and Lintel, like the shift before it from the mainframe to UNIX/RISC, is a classic example of the commoditisation of a core value proposition, he says.

While Sun has moved into selling low-cost x32/60 systems based on AMD’s Opteron CPU, most of its revenue - and margin - still comes from high-end SPARC based servers. The margins on volume servers are thin, compared to the margins on high-end SPARC systems; consequently Dr McIsaac does not see how a massive increase in sales of Opteron will replace declining sales of high-end solutions.  “While Opteron is a positive move for Sun it will not resolve Sun’s fundamental problems,” says Dr McIsaac.

Dr McIsaac believes that Sun is afflicted by strategic inertia, "The new CEO, Jonathan Schwartz has yet to demonstrate that he is up to the task of reversing Sun’s dramatic decline and must still find a strategy to create profit. Jonathan Schwartz is simply continuing his predecessor’s task of realigning Sun costs to match income,” says Dr McIsaac.

The recent round of staffing cuts don’t necessarily indicate disaster for Sun, says Dr McIsaac, although “put together with flat revenues, continual losses, commoditisation of the core value proposition and a lack of strategies to increase revenue or profitability means more of the same – flat revenues and more losses. Generally this leads to a corporate death spiral of more cuts and more changes.”