ALKHOBAR, 24 February 2004 — We’ve never featured Sun Microsystems in this column before. Frankly, that’s because I didn’t think this vendor was ready to play in primetime in Saudi Arabia. Inadequate distribution, poor support and lack of interface with local developers were just a few of the problems faced by any local organization idealistic enough to hope to run Sun.
It’s not the technology, mind you. I believe that Sun has some magnificent, astounding, splendiferous technology. Their technology is the kind of stuff that makes you want to get down on your knees and thank God for creating engineers. It is my ultimate fantasy that someday, equipped with only a Sun Java Smart Card, I might set off on business trips unencumbered by a ton of portable computer equipment. Sadly, that is still just a dream. Even Sun Microsystems’ own senior executives are still burdened with laptops.
At the Sun Network 2003 conference in Berlin, I asked Elie Simon, president, EMEA, Sun Microsystems, what Sun’s problem was in the Saudi market and he replied, “Honestly, we didn’t see the forest for the Saudi Aramco tree.” It appears that at last this tunnel vision may be about to change, although Sun will have to play serious catch-up with its long-time rival, Microsoft.
For those non-Geeks in the audience it must be explained that Sun Microsystems and Microsoft are enemies. In the corporate arena they sell competing operating systems for business computers that power the Internet. In the e-business arena they sell competing e-business software that is used to build websites. Sun’s Star Office competes as an alternative to Microsoft’s Office. Even their senior officers compete. It is a common occurrence for Sun’s CEO Scott McNealy and Microsoft Chairman Bill Gates to snipe at each other in industry forums.
Sun used to be mostly a hardware company that sold servers bundled with Sun Solaris, an operating system that goes head to head against Microsoft’s Windows operating system. But the war heated up when Sun came out with Java, a software language that allows a program to run on multiple computer platforms without having to be rewritten for each one. Java was quickly recognized as a threat to Microsoft. You see, no longer would developers have to focus on creating Windows programs to reach the mass audience. Suddenly developers were freed from Microsoft domination.
Of course, this liberation wasn’t an overnight event, but finally Java is becoming a huge force. Sun teamed up with some big name partners including IBM and Oracle and got Java out on servers. Now it’s working to embrace mobile devices. Sun was also helped by Microsoft’s security issues, pricing policies and confusion over Microsoft’s .Net strategy.
Microsoft hasn’t taken the challenge lying down. Microsoft has created its own Java-like language, called C#. However, everything that Microsoft does, Sun tries to counter. The company works to erode Microsoft’s user base in every way possible. For example, even though it markets its own operating system, Sun sells Linux-based servers.
At the end of 2003, Sun announced new pricing policies. Its Java Enterprise System (JES) and Java Desktop System each became available at $100 per employee per year. Depending on the enterprise size, Microsoft products serving similar purposes can cost up to three times more. All Sun prices include quarterly updates, maintenance, technical support, consulting services and training, and Sun has promised that fees won’t rise more than five percent per year. Sun customers already running Solaris are being offered a 90-day free trial of JES. Those who prefer to buy software piecemeal can continue to do so, but Sun believes many will shift.
JES consolidates the Sun One application server and middleware products, including software for user authentication, e-mail, calendars, web and application services, a portal product, communications and collaboration components, and availability and security services. Industry observers have stated that Sun’s pricing approach is radical.
And so on to Berlin for the two-day Sun Network 2003 conference and exhibition which was held in December.
“Sun Network EMEA built on the success of our two previous US conferences and continued the tradition of helping attendees to develop best practices for taking cost and complexity out of their IT environments,” said Simon. “Sun Network Conferences will continue to bring Sun, our customers and partners together to exchange ideas on ways technology can play an increasing role in the success of an organization.”
At the Sun conference the question every journalist had was whether Sun could profit at its newly announced prices.
“Yes, we’re going to make money at these prices. We’re in the business of making money,” said McNealy. “It’s a very shameful thing to be a capitalist. We’re over it. We’ve accepted our lot in life and we’re okay with being a capitalist. So we’re not doing this for charity or as any sort of movement against Microsoft.”
McNealy emphasized that Sun’s strategy is to build on the adoption of JES to offer everything from hardware to value added professional services and financing. It was pointed out to McNealy that this might play well in countries such as China which are just now making their first significant enterprise technology purchases and are enthusiastically embracing Sun. However, what about the United States and Europe? How many of those companies in mature markets would be making the migration to Sun?
“The further you get from Redmond the better chance you have,” countered McNealy.
The Sun CEO had strong feelings about competitiveness in business. Holding an honors degree in economics from Harvard University, McNealy felt qualified to comment that markets were now global rather than national. There were no longer physical boundaries around commerce, around people movement, around job movement or around financial markets. He noted that business has seen dramatic shifts over the last three decades, but governments were often still trying to control economic policy in old-fashioned ways.
“The only thing that governments can do is drive people away by making taxes too high or by making job mobility too hard,” he said. “Every CEO has a list of the Top 10 countries where we’d never hire another person because you can’t fire them. I need to be able to hire and relocate not at will, but as necessary. We don’t enjoy firing people, but if we can’t do that in a particular geography then we won’t go there.”
Everything in the Sun Microsystems world is based on the positive return it will bring to the bottom line.
“If we get an ROI we make it,” McNealy commented. “If we see an ROI in Cleveland that’s higher than some other place we put it into Cleveland. If we see it in Beijing we put it in Beijing. Do we make the right ROI calls? It’s very hard to financially model every investment we make in this company. Are we looking for more ways to spend more money? No.”
That said, Sun has just moved its regional headquarters to a new location in Dubai at the Internet City. Some Saudi customers are less than impressed with what they see as investment in trappings over substance.
“Sun’s initiatives in the Saudi market can’t compare to those of companies such as HP or IBM,” said one enterprise IT manager. “Especially for projects that are mission critical, competent local support is still an issue with Sun.”
It is also essential to point out that price is not the only factor in corporate software purchases.
“Evaluate JES one component at a time and consider that the suite is not an even set of technology,” Gartner analyst Daryl Plummer recommended in a recent research note. “Some of its components are first-class; others are still in development or are relatively new and unproven, especially in large enterprise settings.”
What the future holds for Sun is hard to predict. The past though is all in black and white. For Sun’s fiscal 2004 second quarter, which ended Dec. 28, 2003 revenues were $2.888 billion, a sequential increase of 13.9 percent and a year-over-year decline of 0.9 percent as compared with $2.915 billion for the second quarter of fiscal 2003. Total gross margin for the quarter as a percent of revenues was 41.8 percent, an increase of 1.7 percentage points sequentially and a decrease of 1.5 percentage points as compared with the second quarter of fiscal 2003. Net loss for the quarter was $125 million or $0.04 per share as compared with a net loss of $2.283 billion or a net loss of $0.72 per share for the second quarter of fiscal 2003.
“FY04Q2 was a quarter of progress for us,” said McNealy. “We announced over 20 new products at our sold-out Sun Network conference in Berlin and a significant alliance with AMD that will continue our strategy of using industry economics to deliver extreme performance at compelling price points and puts Sun in a strong product position for calendar year 2004. We continue to be confident that these investments, along with our ongoing focus on operating efficiency and quality, will deliver increasing value to our customers and partners worldwide.”
Wake me when the Java’s ready.
* * *
(Comments to: [email protected].)
