Will Sun Shine Again?

Sun announced its earnings last week; it made $55M last quarter. That's a reasonable turnaround from the previous year when, over the same period, it lost almost $90M. On the upside, that's four straight quarters of profits for Sun " on the down site, it's not a lot of profit and it comes largely on the back of efficiency efforts rather than growth in sales.

I recently sat down for an hour-long interview with Sun Executive VP, John Fowler. Fowler is nothing if not an out-of-the box thinker. He's held a bunch of jobs there, including Software CTO when Sun boldly took its proprietary operating system, Solaris, into open source. A few years later he headed up the systems division as that group committed a minor heresy by partnering with AMD to produce the x64 based servers, dubbed the Galaxy class. A more recent and more major heresy finds Sun in cahoots with Intel as it adds Xeon machines to its Galaxy line.

Of course, it's not just the Galaxy line that's getting attention. In August, the company announced that was releasing its Niagara 2 chip " which amounts to a pretty darn impressive eight-way system on a chip. Where the original Niagara was impressive with eight cores on single chip, the newer version will probably pack the punch for applications that Sun claimed for the original chip. That's largely due to the inclusion of eight floating-point units (the original had only one). That, along with eight on-chip crypto units a couple 10 Gigabit Ethernet ports and onboard memory controller units make this the sort of technology that gets a propeller head's prop spinning. More importantly, it'll all amount to real performance benefits for Sun customers.

When Sun struck its deal with Intel to build systems based its chips, Chairman Scott McNealy said he was looking to IBM for another such deal. Talk about heretical. Now, Solaris runs on the BladeCenter, and Domino and Tivoli software now officially run on Solaris 10. Supposedly, Solaris has even been ported to IBM mainframes. How's that propeller spinning now? To top it off, Dell recently announced that Solaris would show up on its price lists.Given all this, Sun appears to be just dripping with innovation, openness and a willingness to partner. The company now even lists Windows server on its own price list. But even with all this, sales are flat and profits are coming primarily through cost cutting.

Unfortunately, innovation doesn't equate to sales. While Sun has done a fine job with its Galaxy machines, its product lines are still less filled out than those of competitors HP, IBM and Dell. And even though a new state of glasnost exists with many of its competitors, new Web 2.0 technologies challenge the position of Java as an enterprise platform. Adopting the Niagara 2 technology means moving to Solaris 10, and that's a process that will happen only over time.

There's no doubt that Sun suffered badly from a "not invented here" mentality when the market craved a more open approach. HP and Microsoft remain BFFs (best friends forever) with HP's strong consumer and entry-level server businesses and no desire to push its own proprietary OS, HP-UX down to these lower level systems. The company widely participates in Linux projects and even though it's lost some market share as it makes the move from PA-RISC to Itanium on its high end systems, the company more than makes up for it with its increasing portfolio of software and services aimed squarely at the enterprise back office. IBM has embraced Linux and Microsoft OSes as well as it's own OS stable " all of which has paid off for the company.

Sun's response to this desire for openness wasn't to embrace Linux, but instead to create OpenSolaris. Fowler says the goal wasn't necessarily to get others contributing code to the Solaris kernel but instead to create a conversation about the source code. He also says that it'll take a decade for strategy to prove itself, so we shouldn't judge it yet. Be that as it may, the notion seems fundamentally flawed. If what you're looking for is a huge developer community that values the ability to see the source code for the operating system, Linux will obviously win over Solaris. And by opening the source code, Sun has both created a product in OpenSolaris that won't have a revenue stream and given its Solaris faithful a reason to look at AIX and HP-UX based systems.

For some applications, that closed development process used by the likes of HP, IBM and formerly Sun, that results rock solid software married to rock solid hardware is desirable, if expensive. While there's no doubt that Solaris is still a solid OS, there is some doubt about where Sun sees its fortunes and its future for Solaris.Perhaps the most telling comment from Fowler came when asked what he thinks it will take for his systems group to return to double digit growth. The surprising answer was "We need to develop our channel. The sales team isn't going to grow." It's surprising on two fronts. First, Sun has been all about its technology and how it plays for customers. Hearing Fowler talk about channel development seems rather pedestrian when compared with the typical Sun strategies such as Java everywhere, Open Source Solaris and attempting to lead the multicore pack.

Secondly, and more problematic, building a channel takes a while, so seeing the benefits of it will also only come with time. Still, we're now beginning to see those efforts bear fruit. In early November, Avnet announced it would offer Sun hardware bundled with Oracle software. The goal is to serve middle market customers who haven't previously considered Sun. Sun want's it's channel business to grow to $7 billion in 2010. So much so, company executives claimed Sun to be "channel focused and channel centric".