Comment: Sun needs new strategy to survive
Jonathan Schwartz, CEO, Sun, has announced he would slash about 6,000 people or 18 per cent of the company's workforce and would be restructuring the company into software, systems and tools divisions. He said the move could cost the company up to Rs.3,002.18 crore ($600 million) in the next year, but eventually lead to annual savings up to Rs.4,002.91 crore ($800 million).
That's a powerful sign of just how intense the coming economic storm could be for all technology companies. Schwartz's move may calm for a while Wall Street's calls for the company to move to a lower cost structure, but it does not address the underlying problem that has dogged Sun since the dot-com bust of 2001.
Sun's problem is that it wants to be all things to all people.
It wants to keep making its own Sparc processors and Solaris OS that have been keys to the company since it was established. But it also has embraced the move to commodity systems, selling products based both on Advanced Micro Devices Inc. and Intel Corp. CPUs, running Linux and even Microsoft Windows, long the bane of former CEO Scott McNealy.
Under Schwartz, Sun aggressively embraced the open source movement, giving away most of its Java tools and even Solaris, trusting the free code would increase systems sales. Use of Java is amazingly widespread, but Sun's ability to capitalise on it so far has been disappointing.
Unfortunately, Sun has not been able to look for ways to raise sufficient revenues and profits from its open source software business or its own internal microprocessor designs. Neither has it found ways to adequately differentiate its commodity x86/Linux offerings from those of its bigger competitors, IBM and Hewlett-Packard.
Sun deserves credit for an excellent job bringing to market the aggressive multi-core processors it acquired from start-up Afara Websystems. The Niagara CPUs have helped increase the company's sales of Web servers.
But an internal effort to develop the 16-core Rock, the next big chip for its big database systems was delayed earlier this year, and sales in that market are slumping fast. This is a sign Sun is taking on more than it can deliver, and it must let go of something.
In the end, Sun's plate is too full developing its own hardware, acting as a big x86 integrator and pushing a broad open source software business. After the current round of layoffs, maintaining all these business will become even harder.
Some of the company's stellar players are already gone. Co-founder Andy Bechtolsheim returned to the start-up world in October. Sun veteran David Yen left the company in March for Juniper Networks.
Yen had been trying to find a merchant market for Sun's chips to help amortise the internal design work, efforts that have yet to bear fruit. The problem is the number of viable computer microprocessor options is narrowing as the industry consolidates on the x86.
Sun has reflected this fact in its systems business, but it has not yet become ready to let go of its silicon efforts. The force of the current economic storm may pry the chip business from Sun's hands if it is to survive and even then it lacks a clear model for differentiating itself.
Suns' dilemma is a sign to all who face the same fate. This is a time when all companies need to make sure they have a razor sharp focus and are pointed into the accelerating head winds if they want to emerge safe on the other side of the storm.
- Rick Merritt
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