04/24/2009 |
Network WorldDot-com bust, failure to embrace x86 processors ended Sun’s
life as an independent company, analysts say
Oracle's surprising
$7.4 billion deal to purchase Sun this week gives Larry Ellison and crew
a big stake in the hardware market as well as control over Java and other well-known
open
source technologies. But it also spells the end of an independent Sun Microsystems,
one of Silicon Valley's most prominent companies.
How did it all come to this for Sun, often regarded as one of IT's great
innovators during its 27-year lifespan? The dot-com crash at the start of this
decade is frequently cited as the beginning of the end for Sun, and for good
reason. Acquisition missteps and a failure to monetize key products such as
Java also hastened Sun's descent.
"The dot-com bust hurt everybody but it's arguable that Sun was hurt most
of all because it had profited so much in the run up to the boom in the first
place, and hadn't grown its business out as deeply as IBM and some others had,"
says Pund-IT analyst Charles King.
Sun's Sparc servers with the Solaris operating system were snatched up by
dot-com start-ups because of their stability and flexibility in deploying various
applications at affordable prices, King says.
"In the months following the bust, there was a huge amount of Sun product
that was out on the street and it precluded the need for people to upgrade or
purchase new equipment," King says.
Sun prized its Sparc architecture so much that it missed the industry-wide
transition to x86 processors, analysts say. Sun actually did sell x86-based
systems in the 1980s, but concentrated its efforts on Sparc for most of the
90s. In King's view, Sun treated x86 systems as nice toys, but not platforms
that could be used to power a serious corporate data center. Sun did increase
its presence in the x86 market in the years following the dot-com bust with
AMD- and Intel-based
servers, but it seems to have been too little, too late.
The biggest reason for Sun's downfall is "the inability to recognize the
x86 open architecture, as opposed to what they were selling with the Sparc processors,"
says Enterprise Strategy Group analyst Brian Babineau.
Babineau also faults Sun for pursuing a "non-capitalistic strategy" by emphasizing
open source, yet failing to monetize key products such as Java.
King and Babineau both point to failed acquisitions. King notes Sun's $2
billion purchase of Cobalt
Networks, a server appliance vendor that was gobbled up by Sun in 2000 but
never produced any real dividends for its owner.
Sun has attempted to compete in many different hardware and software markets,
but is too often in third or fourth place, Babineau says. Sun bought
MySQL
for $1 billion in 2008, for example, challenging the database market where Oracle
was already king. Sun also executed poorly in the
storage market after purchasing the vendor
StorageTek for $4.1 billion
in 2005, Babineau says.
"There was just mismanagement," Babineau says. "They purchased so many different
things over the years. It was panic and frantic at the end."
Following the dot-com crash, Sun's profits took an immediate dive. After
reporting net income of $1.85 billion in fiscal 2000, that number was halved
to $927 million in 2001. Sun lost $628 million in fiscal 2002 and a whopping
$2.4 billion in fiscal 2003. It returned to profitability in fiscal 2007, but
ultimately the company reported net losses in three of the four most recent
quarters, and the sharks started circling, in a manner of speaking. IBM offered
$7 billion to buy Sun, only to be rebuffed. Several
analysts doubted that Sun could find another buyer after rejecting IBM,
but then Oracle came calling.
One reason Sun couldn't go on in its present form is that the company had
a core group of loyal customers but wasn't able to win many new accounts, King
says. And for many years, when Sun's customers wanted a reliable x86 platform
they had to turn to Sun's competitors.
"The history of the Valley is littered with the dried husks of companies
that had great technology but didn't understand the dynamics of the commercial
market they were trying to compete in," King says.
That's not to say Oracle won't be able to gain success with Sun's technology.
While Sun has failed to maintain profitability, the company did pull in more
than $3 billion in revenue in the most recent quarter.
Oracle is touting Java and Solaris as two key software assets that will help
Oracle and Sun turn a larger profit than they could separately. Oracle, which
is expected to significantly reduce Sun's expenses, predicted that Sun will
bring $1.5 billion in operating profit in its first year as part of the
combined company.
"Java is one of the computer industry's best-known brands and most widely
deployed technologies, and it is the most important software Oracle has ever
acquired," Oracle said in a statement announcing the acquisition. "The Sun Solaris
operating system is the leading platform for the Oracle database, Oracle's largest
business, and has been for a long time. With the acquisition of Sun, Oracle
can optimize the Oracle database for some of the unique, high-end features of
Solaris."
With Oracle seemingly most excited about Sun's software platforms, Babineau
speculates that Oracle might ultimately sell off the hardware business. Other
analysts, such as Forrester Research's
James Kobielus, say Oracle should leverage its new hardware capabilities
with data warehousing appliances that integrate MySQL and other Oracle databases
into Sun servers.
On the whole, Oracle's announcement of the purchase was "remarkably devoid
of detail," King says, so it's tough to say what the combined company will look
like one or two years from now. Oracle and Sun had such tight partnerships already
that dramatic changes may be the exception rather than the rule, he says.
"Frankly Oracle and Sun have worked very closely for the better part of two
decades and I don't really see what the companies will be able to do as a single
organization that they haven't already done as close strategic innovative partners,"
King says.
Selected Comments
Synergy and Proven Management
By Vic W. on Fri, 04/24/2009 - 8:02am
It's clear that Oracle is driven to succeed,
their history and leadership offer continuous evidence
of that. Looking from the outside as a competitor:
They are a very well managed company, taking as
much of the revenue of any contract or sale as they
possibly can. In business, a true predator.
Sun has been a engineering company first and
foremost, innovation and engineering brilliance
are what make Sun standout among the surviving computer
companies. (To be fair, Apple is much the same --
but Apple is in a very different market and Apple
is very well managed these days). Sun has not been
well managed for a long time.
Sun had so much engineering and product DNA that
Oracle can easily manage these pieces for many years
to come, reaping profit off of what Sun itself failed
to monetize to the scope of where Oracle will surely
take it.
With this Sun DNA, Oracle will be competing directly
with IBM and HP. Of these companies, Oracle has
the predatory business edge. IBM and HP seem hell
bent on supporting their bottom line with excessive
services revenue -- which can easily fall under
the cost benefits of automation and better composed
product suites.
The Sun DNA will be seen in Oracle's products
for at least the next decade. This acquisition is
a brilliant move by a well run company that not
only wants to grow but that also has huge ambitions
and
A week ago I was presenting
A Brief
History Of Solaris at the Sun HPC Consortium in Dresden. My slideware is
pretty minimalist (audiences generally don't respond well to extended lists
of bullet points), but it should give you a flavour of my presentation style
and content. For more, see
Josh Simon's writeup.
My main point is that although Solaris is a good place to be because
it has a consistent track record of innovation (e.g. ONC, mmap, dynamic linking,
audaciously scalable SMP, threads, doors, 64-bit, containers, large memory support,
zones, ZFS, DTrace, ...), the clincher is that these innovations meet in a robust
package with long term compatibility and support.
Linus may kid himself that
ZFS is all Solaris
has to offer, but the Linux community has been sincerely flattering Sun
for years with its imitation and use of so many Solaris technologies. Yes, there
is potential for this to work both ways, but until now the traffic has been
mostly a one way street.
As a colleague recently pointed out it is worth considering questions like
"what would Solaris be without the Linux interfaces it has adopted?" and "what
would Linux be without the interfaces it has adopted from Sun?" (e.g. NFS, NIS,
PAM, nsswitch.conf, ld.so.1, LD_*, /proc, doors, kernel slab allocator, ...).
Wow, isn't sharing cool!
Solaris: often imitated, seldom bettered.
Phil Harman from Sun's Solaris group gave an informative and amusing talk
at the
HPC Consortium meeting in Dresden this week titled, "A Brief History of
Solaris." I'm hoping the full talk will be posted on the Consortium site at
some point.
Phil began his history of Solaris by reminding us of some of the "prehistoric"
innovations in SunOS. For example, who but Sun was doing open network computing
back in the 1980s with innovations like NFS, NIS, the automounter, XDR, and
RPC? How about the STREAMS abstraction? mmap? ld.so?
He then moved to innovations done by Sun "within living memory." His list
included loadable, configurable kernels; dynamic system domains; /proc; truss;
the p-tools; and /etc/nsswitch.conf. Not to mention "audacious" SMP scalability,
and a compatible 32/64 bit transition strategy that maintained binary investments
through our transition to 64-bit computing. Oh yes, and there was that Java
thing as well...
Innovations done "just yesterday" included Hierarchical Lgroup Support (HLS),
Multiple Page Size Support (MPSS),
containers, Service Management Facility (SMF),
zones,
BrandZ,
ZFS, and
DTrace.
He finished with some comments on
ZFS, which he motivated
with the graphic I've placed at the top of this blog post. It illustrates the
problems of single-bit errors. In this case, a printer was fined by the King
of England for what amounted to a life's wages for making this error in a 1631
edition of the King James bible (known as the
Wicked Bible). "Got checksums?", asks Phil as he noted that ZFS protects
the datapath all the way from the rotating rust (the disk) to memory.
Does the "I" in RAID mean "Inexpensive" or "Independent"? The former is correct,
so why do some in our industry prefer the "independent" interpretation? Phil
explained why during his talk and also in
this blog entry.