InformationWeek

November 15, 1999

Strong Network Focus Makes Sun's Future Bright

ike most of its competition, Sun Microsystems has to face the Y2K reality that some customers won't begin projects that require investment in new servers until after the turn of the century. But the company doesn't seem to be suffering much as a result. Sun is checking in with some of its best numbers ever, thanks in part to its strong presence among Internet companies with voracious appetites for more capacity.

Few predicted the network economy springing up around the Internet as the decade closes, but Sun was well-positioned to take advantage of it, having focused its research and development on network capabilities for its servers, workstations, and operating system since the 1980s. Observers say Sun has also profited by its stand against the Wintel revolution. Though Sun does offer a version of its Solaris Unix operating system for Intel to other hardware manufacturers, it focuses its efforts on optimizing Solaris on its UltraSparc RISC chips. It has steadfastly resisted devoting money and resources to developing its own 64-bit Intel Itanium servers that will run Windows 2000 Data Center Edition or Solaris. Analysts say that gives Sun clean Unix scalability from its low-end four-way servers to high-end E10000 systems.

"The other system vendors have discontinuity in the processor or system architecture, while Sun has a very solid, continuous line of backward compatibility," says Tony Iams, an analyst with D.H. Brown Associates. "It's more important than ever for the extreme load variations of the Internet to start out small and grow as quickly as you can."

Wall Street likes what it sees in Sun. "The vision of the network as the computer was early, but the world has caught up with it," says Steve Milunovich, a financial analyst with Merrill Lynch. Milunovich says Sun will be hurt a bit by Y2K, but that's counterbalanced by its success around the Internet. "It's the purest Internet computing company," he says.

Sun last month reported results for its first quarter. Revenue was $3.12 billion, up 25% compared with the first quarter of fiscal 1999. Net income for the first quarter was $274.8 million, an increase of 39% from the previous year's results. Sun expects no slowdown for its second quarter. According to Milunovich, "Sun should continue to be strong for at least a year or two."

Sun recently scored a hit with Encyclopaedia Britannica Inc.; the Chicago company shut down its Britannica.com site last month because of poor performance caused by an unexpectedly huge spike in demand (InformationWeek, Nov. 1, 1999). In addition to fast-forwarding its agreement with Akamai Technologies Inc. to use its caching service, Britannica accelerated its order for dozens of Sun servers, asking for delivery within two weeks rather than over six months. Kent Devereaux, senior VP of product development for Britannica.com, says he's pleased with Sun's fast response. "Now I know that we can keep adding capacity until we feel we have a comfortable margin for spikes in demand," says Devereaux. "Sun clearly understands running a major Web site, and it's very good with its depth of knowledge on the applications side and the operational side. Most importantly, Sun's been flexible."

The emergence of Java as a back-end application framework also ensures that Sun won't be merely a box pusher, says Iams. Sun president Masood Jabbar agrees, noting that the company's biggest upcoming challenge is influencing the application development environment and standards for wireless access. "We'll have to increase work in releasing mobile, liberating technology anytime, anywhere," says Jabbar. "The next wave is wireless, and we have a lot of work to do still."

But Iams adds that the company will "face an overwhelming tide from the vendors betting on IA-64." While Sun's UltraSparc 3 won't be heavily pressured until the second-generation IA-64 chip, McKinley, ships in 2001, Iams says the shipment of Windows 2000 Data Center Edition next May creates more immediate problems. "Sun is banking on the fact that Windows 2000 Data Center Edition still won't have the scalability and reliability of Solaris 8, which will be out by then," says Iams. "Still, Solaris vs. Windows 2000 will be a death match."

Jabbar's not worried. "How many times have people raised the issue of Intel and Microsoft killing us?" he says. The 40 million lines of code in Windows 2000 is not how operating systems will be deployed anymore, he says. "We delivered Windows 2000 Data Center Edition functionality four years ago," he adds. "We're developing Solaris for the network economy. The rules of the game have changed."

Go on to the next story, "Dell Finds Success In Its Custom-Build Strategy ."

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