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January 31, 2000

Amid Cold, Sun Shines
Sun is working hard to remain a leader in E-business

By Martin J. Garvey with Paul McDougall and Tischelle George

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n a cold, snowy-frankly, miserable-winter day in New York last week, Sun Microsystems president and chief operating officer Ed Zander unveiled a major upgrade to the company's flagship operating system, Solaris. Attendance was lighter than Sun had expected, given that the dearth of cabs required a brisk walk to the Equitable Building, where the launch was held. But Zander was smiling anyway. And why not-even on the worst days, Sun is doing very well.

Sun, already a leading provider of Internet servers, is pitching Solaris 8 as the perfect operating system for Web and E-commerce environments. The Unix variant boasts more than 200 improvements, many directly related to Net performance. "It's all about continuous availability and scalability, with the number of users increasing exponentially," Zander says.

A week earlier, Sun released impressive financial results-as has become its habit-for its most-recent quarter. The voracious capacity needs of Sun users building E-business infrastructures helped the company sail through the quarter, even as IBM and others blamed disappointing server sales on Y2K lockdowns. Compared with the same period last year, Sun's revenue grew 27% to $3.55 billion-and the growth came without cutting prices, increasing marketing costs, or skimping on research and development.

"The dot-com companies are trying to grow quickly. They don't go through long evaluations, and if everyone else uses Sun, it must be the horse to ride," says Chuck Jones, an analyst with Solomon Smith Barney. "It's almost as if Sun has become a de facto standard in the dot-com space."

When Solaris 8 ships in March, clothing retailer J.Crew Group Inc. will be among the companies taking a close look at it for its Jcrew.com Web site. "The ability to synchronize the systems environment without taking our site down and the stability of the architecture are reasons to go with Solaris 8," says Tom Lesica, CIO and senior VP at the New York company.

The software platform will support automated dynamic reconfiguration, a functionality typically found in mainframe environments, to redistribute system capacity to accommodate surges in Web-site traffic. Also included are the Sun-America Online-Netscape alliance's iPlanet directory services, which companies can use to identify and provide custom service to online customers.

KBKids.com, an online toy retailer, is already planning to migrate to Solaris 8. "Sun has been a leader in Internet capabilities because of its approach to bundling, like including Java 2 Enterprise Edition and XML within Solaris 8," says Shawn Davison, VP of technology at the Denver company. He's also looking forward to taking advantage of Solaris' inclusion of the updated Internet Protocol, IPv6, to support a vast number of IP addresses.

When combined with clustering software due later this year, Solaris 8 will cluster up to eight 64-processor Enterprise 10000 UltraSparc servers-twice that of Solaris 7-and it can shut down a CPU before problems cause it to fail, moving the workload elsewhere. "We have to be open all the time," Davison says.

There's more coming. Improvements to Sun's UltraSparc chip and storage products are on the way, and Sun's 10,000-employee services business, which accounted for more than $550 million of the company's revenue last quarter, is being charged with building innovative Internet frameworks.

But Sun faces competition across the board. Windows 2000 is only two weeks away, and Microsoft is feverishly working on a Web strategy, dubbed Next-Generation Windows Services, to be fleshed out in the spring. Intel will begin manufacturing its high-end

IA-64 chip line this year. And IBM continues to shake up its server division in an effort to beat Sun head-on. On top of everything else, Linux is emerging as a legitimate enterprise environment. "Sun has the risk of losing, especially to Linux," Davison says.

"The Solaris folks clearly see Linux as a major threat," says Les Wilson, Hewlett-Packard's Mission Critical Solutions manager. "Linux mainly ships on IA-32 chips, so the UltraSparc folks are pretty worried, too."

Sun moved to address the Linux factor by disclosing plans to give away Solaris when it's used on systems with eight or fewer CPUs, and to provide access to the Solaris source code. Sun wants to make Solaris, which runs on Intel chips but has little presence in that market, more attractive to Windows and Linux users and developers. "Linux has the developers' attention and Sun has to deal with it," says Tony Iams, a senior analyst with D.H. Brown Associates.

Sun will also try to avoid being overcome by Intel by upgrading its current top-of-the-line 450-MHz CPU to both a 600-MHz and a 750-MHz UltraSparc IIIs in June. That's about the same time Intel should ship the 64-bit Itanium, which sources say will debut at 800 MHz.

UltraSparc servers are typically more expensive than Intel servers when measured by cost per transaction, but analysts say Sun has a technology advantage. The tight integration between Solaris and UltraSparc means a 750-MHz Sun server should perform faster than an 800-MHz Itanium server running any of the operating systems it will support. Sun "offers the same architecture from a sub-$2,000 server to a multimillion- dollar Enterprise 10000," Iams says. "The other major system vendors make customers change the way they implement, deploy, and manage high-end servers vs. low-end servers."

IBM has its sights set on Sun. Last week, IBM reorganized its Enterprise Systems Group for the second time this month and established a 6,000-employee Web server unit. "Until now, Sun has had the luxury of operating largely uncontested in that space," says Rod Adkins, general manager for the new group. IBM has also formed a Linux unit and established a Linux development team.

IBM runs second to Sun in Unix server shipments, according to Dataquest's most recent figures for 1999. It's counting on new products to boost its fortunes among dot-coms-specifically its 12-way RS/6000 S80 system. "We made a conscious decision to pick IBM over Sun," says Randy Thompson, chief technology officer at iBooks in Austin, Texas, which puts IT reference materials online and has more than 2 terabytes of data on an S80. "We're in a Java environment, and the S80 was the fastest and most stable platform we found."

In February, IBM will ship version 4.1 of its WebSphere Commerce Suite, with modules for customer-relationship management, order and inventory management, visitor registration, and auctions, using components from NetPerceptions Inc., Siebel Systems Inc., and others. In a bow to user demand, IBM says it will resell iPlanet for the RS/6000.

Sun concedes the broad IT services market to IBM, but it's ramping up its own consulting services group, which grew by 39% in its most-recent quarter compared with a year ago. Daniel Berg, director of Sun.com consulting, says Sun's challenge is to build infrastructures as quickly as possible for customers to meet unprecedented Web demands. "A lot of what we do is the first time it's being done," Berg says.

What about Java? Gina Centoni, director of product marketing for Java, says Sun will unveil a road map in the spring for the next release of the Java 2 developers' kit. This week, Sun will discuss Java's role in Linux environments, but Centoni didn't provide details.

The proliferation of wireless handhelds and other non-PC Internet-access devices bolsters Sun's case that big servers-such as its Enterprise 10000-will be the foundation of the networked economy. This week, the Sun-AOL-Netscape alliance will unveil an application server for delivering Internet calendar and E-mail apps to mobile devices. The iPlanet Wireless Server, due in March, uses the Wireless Markup Language for communication with Wireless Application Protocol devices, as well as Handheld Device Markup Language and HTML.

Another piece of the puzzle for many Internet operations is storage. Sun's modular storage systems generally work well in Web infrastructures, but the company last year pulled the plug on its FC 7000, a large storage system it gained through its acquisition of Encore, because Solaris wouldn't run on it. That and other problems may have cost Sun some business.

At Leeson Electric Corp., an electronic motor manufacturer in Grafton, Wis., storage requirements were increasing because of a project, called Leebiz.com, to let distributors tap into an extranet to view account data. Mary Fonder, VP of IT and CIO, says she runs the operation on Sun servers, but chose EMC Corp.'s storage systems. "EMC's storage software appeared to be about 12 months ahead of Sun's," she says.

Sun plans to fix that with storage-management software due next quarter. It will deliver a remote-mirroring product to let customers maintain copies of data across unlimited distances. And Instant Image, shipping this week, will let users load or back up data while a production system is running. Next quarter, Sun also will ship new storage appliances.

Zander acknowledges the challenges. "There's a new generation of customers who demand more than we're giving them," he says. "We need to execute with speed."

With additional reporting by Jennifer Mateyaschuk and Aaron Ricadela

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