Is Sun Setting?

Things are not looking so great for Sun Microsystems Inc., which is feeling the heat in both the hardware and services markets from rival vendors such as IBM Corp. (NYSE: IBM).

As expected, Sun's quarterly report yesterday made for pretty grim reading. The company reported a net loss of $760 million, or 23 cents a share. This compares to net income of $4 million, breakeven per share, during the year-ago quarter (see Sun Loses $760M in Q3).

To make matters worse, Sun is now faced with the prospect of shedding some of the excess weight it acquired during the Internet boom. But there are other issues at the heart of this problem.

Sun struggles to promote a coherent message about its technology. As one Sun customer, who asked not to be named, puts it, Sun hasn’t been working hard enough at explaining their long-term strategy.”

“What Sun is missing, that IBM has been really good at, is that Sun hasn’t told a compelling enough message,” says Thomas Murphy, VP at Meta Group.“There is no theme that holds it all together, such as [IBM’s] on-demand computing, which says, ‘This is going to make your business better.’ ”

With a major reorganization now underway, Sun acknowledges that things need to be changed.

Sun is also pinning its hopes on its new partnership with its former archrival Microsoft Corp., which has never been one to cheer for Sun's success (see Microsoft, Sun Settle Litigation).

Under a broad technology agreement, the two companies will cooperate on Microsoft's Windows Server and Windows Client products. Eventually, the relationship will be extended to email and database products. This, at least, has pleased users, who are keen to improve the interoperability of their Sun kit and Microsoft software.

At the same time as the Microsoft announcement, the company revealed that it is cutting 3,300 jobs, which represents 9 percent of its workforce -- not exactly a confidence builder.This has been accompanied by the usual managerial merry-go-round and, crucially, a major reorganization of some of the company’s hardware.

A new Network Systems organization will bring together the company’s Intel Corp. (Nasdaq: INTC)and Advanced Micro Devices (NYSE: AMD)processor-based systems. Sun’s microprocessors, enterprise systems, and SPARC-based initiatives will become part of a new Throughput Systems division. This could prove key.

By overhauling some of its key internal divisions, Sun is at least attempting to improve its routes to market.

But, there is still a long way to go. “They are making a lot of changes, but they are still not quite out of the woods,” says Murphy.

— James Rogers, Site Editor, Next-gen Data Center Forum0