Understanding the Changes We’re Driving

Please see the Safe Harbor Statement at the bottom of this page.


By now you’ve all seen the press release we issued today, outlining a plan approved by Sun’s board of directors – in which we’ll be lowering cost, accelerating profitability, and as a part of both, implementing a workforce reduction of up to 5,000 employees. At the outset, I know these changes will be tough for many employees, but I’m also convinced they’ll yield a more valuable company for customers, shareholders and our remaining employees, one that’s leaner and more efficient.


We’ve also provided insight into Sun’s operating income goals for 2007, and a framework for thinking about our performance beyond that point. We’ve also changed elements of our corporate governance – these actions are designed to make Sun a more transparent organization, and one more responsive to long-term shareholders, and simpler to understand.


I’d like to review the thought processes that led to these decisions, and provide color on our going forward market focus and R&D priorities.


Just after last quarter’s earnings call, I initiated a top to bottom review of our markets, our R&D portfolio, and our overall corporate resourcing. You’ve already seen management and organizational changes resulting from that work, reported in the past few weeks.


At a top level, these reviews were focused on simplifying Sun – making choices to clarify our priorities, speed up our progress, and drive the transparency that gives all of you more insight into where we’re headed. It’s been similar actions, over the years, that have enabled us to expand gross margins and deliver top line growth. But these are all points along a path, a path we’re now accelerating.


So first, I’ll address Sun’s market focus.


Our industry is littered with companies that try to be all things to all people. That’s not Sun.


In my first 30 days as CEO, I’ve spent a great deal of time with leaders from among our global customers – and having just completed our most successful JavaOne conference ever, with our most strategic constituency, the Java and Solaris developer communities.


I’ve heard a consistent message – the internet’s growing at an incredible rate – and for many of our customers, the network has become core to how they engage their markets and create competitive advantage. Those are our key customers, those that see network computing as a vital element of their strategy, those pushing the limits of scale and load, and those that see IT innovation as anything but a cost center.


As we began nearly two years ago, we will continue to simplify our coverage models, adding expertise where we can grow value and share. As you’ve seen in Gartner Dataquest’s recent Worldwide Server report, Sun did just this, gaining share with both UltraSPARC systems and x64 systems against our leading competitor/partners. We absolutely believe we can continue to grow as we focus our field and partnering resources on the right opportunities.


We will focus on those companies, from startups to global players, that see network computing as their principal route to market, principal vehicle to differentiate, and principal competitive weapon. We expect to focus our coverage in these accounts, while streamlining our efforts to extend our coverage with the world’s most attractive partner community. And to be clear, we are adding coverage and technical specialists, while continuing to reduce redundant or duplicative functions. The market isn’t shrinking, nor will our field presence, channel focus or partnering efforts.


Next, I’d like to focus on our research and development priorities.


As many of you are aware, Sun has one of the strongest R&D organizations in the world – one we’ve sustained while our competitors have cut – leaving us with an operating system and microprocessor platform which makes our competitors begin to appear as partners. We have some demonstrable technology advantages… energy efficiency, operating systems innovation, dramatic gains in developer adoption. That’s certainly the cornerstone of our recovery.


And with those assets, we serve two constituencies – developers, who create content for the network, and deployers, who purchase and operate software and hardware infrastructure in the world’s datacenters. I will continue to stress that revenue for Sun is a lagging indicator of the adoption of our core developer platforms – both of which we are reinforcing with today’s actions.


We will decrease some non-core R&D, and specifically duplicative or redundant infrastructure and management processes, but we are expecting to increase our focus on developers, and on investments in Java innovation, and the open source Solaris operating system. The adoption of those technologies will continue to define large revenue opportunities for us in companies like eBay, Motorola, General Motors and American Express – all of whom, by making decisions long ago to leverage Java and Solaris, have become very significant customers – in software, in systems, in storage and services.


As the world’s largest free and open source company, we expect to monetize a portion of what we freely distribute through service and support contracts, along with traditional software licensing; and through volume as well as enterprise systems and storage sales. We expect the internet marketplace to grow, and we expect our core intellectual property, for developers and deployers, to give us a significant competitive advantage against those without comparable assets. Simplicity, scale, automation and security will continue to be our differentiators.


You will see in today’s actions that we will be simplifying our product line, and reducing duplicative R&D – to help you interpret that, we will build all products at Sun from Java, Solaris, StorageTek and from our newly unified SPARC and x64 SunFire platforms. I’d like to briefly point to three products that represent the future of such systems innovations. The recently unveiled Niagara servers, the StorageTek Titanium archive platform; and lastly, an upcoming extension to our NAS offerings, code named Thumper.


Having anticipated today’s datacenter focus on green computing, Sun began investing years ago in energy efficiency – as a result, our Niagara servers now operate at less than half to a fifth the power draw of our competition (potentially qualifying our customers for carbon credits). As I mentioned earlier, many of you saw the share gains Gartner reported for Sun last week – we believe we can continue to grow share, having recently taped out an even more energy efficient follow on to Niagara – we are adding support for Linux and BSD operating systems on our SPARC platforms, opening new markets for the same platform investment supporting Solaris, leveraging the same R&D over a broader opportunity.


Secondly, the StorageTek T10000 is the highest scale and security archive offering in the marketplace – it’s leveraged by an array of customers, from governments to on-line portals, and many of the world’s largest institutions. But you’ve all heard disaster stories from banks or media companies that have “lost their tapes,” revealing what was supposed to be protected consumer information. As a part of Sun, we were able to leverage our systems innovation to add high security encryption to these systems, largely eliminating the risk of losing data. Integrating our StorageTek platforms with Sun’s market leading Solaris and Java Enterprise offerings allows us to solve a spectrum of business problems our storage only competitors cannot. This innovation was a matter of linking existing technologies – and will be a focus area while we reduce other proprietary approaches. And again, StorageTek systems will be built atop SunFire servers running Solaris, while maintaining their mainframe heritage and interoperability. Leveraging the same R&D over a broader opportunity.


Finally, and arguably the best example of the alignment of Sun’s systems innovation is a project we’ll be announcing in late June – code name Thumper. Thumper is a SunFire server, running Solaris and its 128-bit ZFS file system, that packs 24 Terabytes of storage into a miniature package – allowing Solaris and Java applications to run directly on the storage device at breathtaking speed and price points. It’s a perfect example of combining our software and hardware expertise, with an existing supply chain, to deliver a broader market, greater margins, and new customers – leveraging common IP, over a broader opportunity. We’ll be announcing complete details at the end of June.


To repeat, we will be simplifying our product line, our supply chain, our development and management processes – while retaining a focus on open source innovation, horizontal scalability and security, and on service automation around our Network.com Grid. All while we continue to seamlessly interoperate with existing systems, from mainframes to Microsoft Windows.


As I stated above, we’ve improved gross margins over the past couple of years – we will seek to generate more value from our R&D going forward.


Finally, I’d like to leave you with a couple notes on Transparency and Business Focus


You will hear me and Sun’s Chief Financial Officer, Mike Lehman, begin to make projections of our going forward business – we have an increasing confidence in the stability of that business, and as we continue to see growth in our core developer offerings, we have increasing line of sight into new markets and customer opportunities. We will reflect that clarity and transparency to the best of our ability.


Today’s changes will result in a significant reduction in non-core or redundant R&D, field and corporate resourcing – with significant synergies arising from the acceleration of acquisition integrations into Sun. Again, we expect these changes to have little to no impact on customers, and instead to create more opportunities for business partners and suppliers to join with Sun in serving the global market.


We have believed for the 24 years of our existence in a singular vision – the network is the computer. That vision remains unchanged, and if anything, today’s refinements to our market focus, our R&D portfolio, and to our overall business model, drive us even closer to fulfilling it.

_________________________________________________________________________

Safe Harbor Statement

This blog contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the future results and performance of Sun Microsystems, Inc., including statements regarding Sun’s growth plan, Sun’s return to profitability, future growth, areas of future investment, the competitive advantage that results from Sun’s intellectual property and the monetization of such intellectual property, the attributes of and benefits to be derived from future products, continued gains in market share and synergies to be derived from acquisition integrations. These forward-looking statements involve risks and uncertainties and actual results could differ materially from those predicted in any such forward-looking statements. Factors that could cause actual results to differ materially from those contained in Sun’s projections and forward-looking statements include: failure to achieve expected cost savings within the expected time frames; increased competition; failure to rapidly and successfully develop and introduce new products; Sun’s reliance on single-source suppliers; risks associated with Sun’s ability to purchase a sufficient amount of components to meet demand; inventory risks; risks associated with Sun’s international customers and operations; delays in product development or customer acceptance and implementation of new products and technologies; Sun’s dependence on significant customers and specific industries; Sun’s dependence on channel partners; risks associated with Sun’s tape products; and failure to successfully integrate acquired companies. Please also refer to Sun’s periodic reports that are filed from time to time with the Securities and Exchange Commission, including Sun’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and Sun’s Quarterly Reports on Form 10-Q for the fiscal quarters ended September 25, 2005, December 25, 2005 and March 26, 2006. Sun assumes no obligation to, and does not currently intend to, update these forward-looking statements.


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31 Comments

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31 responses to “Understanding the Changes We’re Driving

  1. Roger Hughes

    Wow – it’s never easy to compliment when peoples lives are impacted but I can’t help be impressed. Your blogs are a lesson on how to communicate messages effectively using this medium.
    I think Sun’s key strength is it protects its customers investment in Sun technology. Sun’s customers don’t buy toys they buy mission critical systems. Sun’s focus on growth path and compatibility means clients investment in building specialist skills can remain valid and the expensive assets and applications that sit at the core of their corporations can stay viable for longer. But all this technological security starts to fall apart when Sun itself stops making money. Customers need a financially strong Sun to be around to own the vision, provide support and innovate.

  2. Jonathon,
    I think it is great that you are posting on your Blog more details after the press release to address customer, partner, and developer concerns and questions regarding the changes at Sun.
    My focus is on the enterprise content management market and wondered if Sun sees the upcoming “Thumper” offering as similar and competitive to EMC’s Centera. With unstructured content representing the fastest growing segment of content these types of storage solutions very interesting.
    Compliance and information security is of great concern and having a highly scalable “magnetic WORM” storage solution that could also be encrypted without impacting performance could be interesting.

  3. Boxter

    It’s about time for this announcement. I think we are overdue and change is good in this industry. For those unfortunate, look on the brighter side. Please let this be about turning SUN back into “the network is the computer” not the network is the company.

  4. Those thumper machines sound great!
    I hope you also make a try&buy competition for those like you did for the niagra machines.
    While I feel sorry for the people affected, the current business environment is thriving so it shouldn’t affect them for long.

  5. Just a couple of things:
    1) More focus on international markets – Sun lost a $10million contract in New Zealand because its management in NZ were more interested in eating peanuts and bad mouthing Microsoft, than winning customer, high and low.
    2) More focus on the small to medium business is required; all very nice to focus on the GM’s and GE’s of the world, but the fastest growing segment of the market is small to mendium size business – bolster the sales team with a good consultancy wing equal to that of IBM Global services, which can not only provide technology advice by business consultancy and how the technology can be intergrated into their business structure.
    3) Sun needs to start focusing its efforts on making Solaris not only the worlds best operating system for servers, but for Desktops.
    4) Sun needs to improve its marketing – goodness knows, its getting as bad as Digital; get Saatchi and Saatchi into the room, and start turning Sun, Java and Solaris into house hold names rather than being obscure names in the IT sector.
    5) Whats the situation with hiring? still employing people? (one is interesting in marketing).

  6. sunil Dalal

    I am sure it was a difficult day. A blog entry today with details to the thinking makes it even more impressive. Congratulations and wish you and everyone at Sun all the success in making this work.

  7. Soon to be former customer

    We spent about $500K on Sun gear last year. Unfortunately, we’re just a simple trucking company…and the Internet is not “our principal route to market” or our “principal vehicle to differentiate”. So I guess you want us to go somewhere else. Have fun with the dot-coms.

  8. James Stanley

    Once again, instead of leading a company and inspiring a workforce to create improved products and compete in the market place, the leaders of a company hide behind their own limited ability to grasp the true power of the company they hold and run to marketspeak and reduction in force. Not impressed.

  9. Harold

    I’ve loved Sun from the very beginning, but was swept away by the windows-deluge. If Sun is pruning by such an extent, they must be abandoning some efforts, and this is not clear (nor would a company wish to clearly state this).
    My guesses of what you are (should be) abandoning:
    -the fight with Linux
    -consumer space
    -single installations
    -technical computing
    The Web is now moving into Sun’s preferred high-margin space, of ‘processing servers’. When I retire next year I really want to get back into designing Sun installations again, and no windows!

  10. Thorfin

    Please give a little more thought to hardware product “development”.
    The SunFire 120’s were perfect for our applications. Their replacment, the T1000s are way overpowered for our apps, cost a third more and have no provision for cd or dvd drives.
    One of the biggest selling points for us (other than the low price) was the simple reliability – being able to get a remote console, boot from the cd and fix or completely reinstall a failed server a thousand miles away – without ever needing a local or remote boot server.
    Also, I didn’t see the point in having two identical systems and calling one SunFire and the othter Netra and telling customers they couldn’t get the SunFire in DC voltage.
    All this and the “pay for patches” plan in Solaris 10 has us looking for a different solution.

  11. Jonathan, I hope you got rid of all the useless middle management you have, the incompetant marketing department and all the useless sales people you have.
    Don’t let go of the talent that makes Sun great, the engineers, programmers and the technical support people.
    Sun should focus on marketing Solaris as the greatest thing since sliced bread, continue to reach out to the developer community.
    I would have to agree with the comments above, that Sun’s marketing is horrible. Where did you find these people?
    Add more AMD based machines to the mix, fewer high end boxes.
    Dump the grid services you have, let someone else do that, FOCUS on Solaris, small and medium sized businesses, not just multinationals.
    My company is very interested in moving to Linux on Dell (BLECH!) but your sales people are nowhere to be found, trying to convince my management that Sun has better solutions for running our Oracle applications. I can only do so much to keep the trainwreck (Linux on Dell ) from happening!
    Solaris Solaris Solaris Solaris!!!
    Good Luck!

  12. bingo

    Well said and about time.
    How about dropping Sun Java Enterpise System Web Server and start supporting Apache 2/Tomcat 5? It’s likely Sun knows more about these products than Covalent, and think of all the R&D you would save.

    If we could get Sun support for Apache 2/Tomcat 5 on Solaris/SPARC, that would be optimal. This is the market leading web platform and it’s sad that you have to run JES for Sun support. Lots of middleware vendors bundle this stack as well (with MySQL or Sleepycat).

    Also, looking forward to running Ubuntu on SPARC!

  13. John

    Um, don’t you need to be profitable before you can “accelerate profitability”?

  14. Greg Glawitsch

    In my opinion, SUN needs to end-of-life the SPARC line of processors. Sooner better than later.

    Keeping hundreds of electronics engineers around for what is essentially a (benchmark-wise and revenue-wise) underperforming line of processors does not make sense.

    The problem is, that SPARC was done in a half-ass way: Doing your own processor designs, which is commendable but very expensive, but then relying on other fabs (TI, if memory serves) for manufacturing, which means that those performance improvements that would require chip process tweaks cannot be implemented.

    SUN should either have a fab for SPARC, then the processors would (hopefully) be able to compete with Intel Xeon/Amd Opteron/IBM Power, or dump SPARC alltogether. The best time for building a fab was the dot-com bubble, when SUN was awash in cash, and this opportunity has now passed. Leaving option 2: Dumping SPARC.

    Do it.
    Knife the baby.

    Others have done it before:
    Compaq dumped the Alpha, HP dumped the “HP Precision Architecture”.

    Do it.

    -Greg

  15. As a long time shareholder, I couldn’t be more disappointed in your last blog. It’s gobbly-gook at its best. It’s time for management and the BoD to wake up and smell the roses. It’s time to get your heads out of the sand. Sun needs focus, and both a short-term and long-term plan that will get the company back on the road to profitability. Your statement does neither.
    The right solution for Sun is a wholesale staff reduction of at least 50% of headcount. I can’t imagine you’d be unable to run a company with around 17,000 employees worlwide.
    Second, the company needs entirely new leadship — not carry-overs or bring-backs — but rather progressive thinking “new culture” leaders. The company also needs an entirely new Board. The current Board is one that has breached virtaully all of its fiduciary responsibilities.
    Finally, Sun needs to demonstrate to us shareholders — the ones who own the company and for whom you work — that Sun is credible and relevant.
    As it stands now — it is neither. So you exactly what did you say in your blog post that is anything different than what leadership at Sun has been saying for the past six yers? NOTHING!

  16. Bill Moffitt

    As many people know, I am an ardent supporter of Sun and of Jonathan
    personally, even though I no longer work for Sun.

    Unfortunately, I have to say that I am under-impressed with this move.
    The things I have always admired most about Jonathan are his intellect
    (I’m guessing no one finds that controversial) and his courage. I had
    expected that, once Jonathan got his hands firmly on the reins of the
    company, we’d see that courage come out as a series of bold, decisive
    moves.

    This announcement, however decisive, falls short of bold in my mind: I
    think it’s more pandering than visionary.

    I certainly can’t argue that cuts (maybe even deeper cuts) need to happen at Sun, but people never were and are still not the
    problem. The problem Sun has, and needs a courageous leader to fix, is
    that it is still trying to do too many things at once. Unless you
    remove some of the things (and, by that, I mean at least one big one)
    that Sun does, they’ll be facing the same problem they’re facing right
    now: not doing anything well enough to really “pop” in the market.

    It’s about focus: you cannot focus on being a great supplier of
    enterprise servers, entry servers, storage products, operating systems, middleware,
    development tools and fourty-seven other things at once. You need to
    choose what you’re going to do well and put resources behind those
    items; everything else either manage for cash flow (ummm… do any of
    those “businesses” generate a positive cash flow today?) or divest them.

    I’m not interested in what Sun was yesterday, or what it is today. I
    haven’t heard any good ideas about what Sun is going to be tomorrow,
    and, the logical follow-up, how it’s going to invest in itself to make
    itself into that company.

    There’s still time to build a new, great company out of Sun – there are
    many assets and plenty of capability there. What’s needed is some bold,
    courageous decision-making and some fearless, devoted execution.
    Jonathan – the first step is yours. This isn’t it.

  17. Concened ShareHolder

    Hi Jonathan.
    Its hard time for sun specially with the lay-off announcement. But these were required measures, there is a lot of Management Fat in Sun. When ever there is a layoff people at lower level are effected. But the fat remains. There are lots of groups which have managers with just 5-6 direct reports. We are giving promotions to maintain employee satisfaction. There are certain managers who can’t even get on a conference call with ISV and Partner and pitch Sun to them.
    There are certain teams which do nothing. Employees in these organizations are getting fat pay checks.
    Please ensure that you do justice to all.

  18. Ed Rehrman

    Since you’re so confident and probably making more money than Sun can afford to pay you, how about buying back my stock that I bought five years ago for $10.59. I’m tired of waiting.

  19. WhatNeedsToBeDone

    I, too, feel that there’s more rhetoric than substance in the message. Here’s what needs to be done to get Sun back on track:
    1) Hire a real sales professional to run Sales
    2) Stop trying to get SunFed back to where it was. That place no longer exists.
    3) All of your products are aimed squarely at State, Local, and County Governments where your competitors are have invested much more heavily. This should be your number one growth market.
    4)Stop all this sharing and participation crap in the Education space as it adds nothing to the bottom line. Focus those people on profitable business. Scott’s gone. There’s no need to continue to pour money into a market that has no growth.
    5) Bulk up the Professional Services org with people who understand architecture and can subsequently implement Sun’s stack.
    6) Vigorously go after the systems integrators. They are the real business drivers.
    7) Make it worth while for partners to make the investments necessary to pitch Sun first.
    8) Clear out all of the Director’s and VP’s with few or no direct reports and replace them with Sales people and pre-sales engineers.
    9) Do a much better job of managing customer relationships. That’s the one thing customers appreciate most after a quality implementation.
    10) Make it easier for customers to do business with Sun instead of just talking about it.
    11) To make money and grow see 1 – 10.

  20. Another Disappointed Customer

    Focus on the big iron, server side – that means invest in SPARC like there’s no tomorrow. Join forces with Tomcat/Apache/MySQL. Ditch the desktop, OpenOffice, JES, Solaris x86 and the 1U x86 Linux cheapskate market. Ditch storage/tapes… Sun sucks very bad here. No more diskless workstation dreams – Bill Gates has already won the desktop. Let us buy commodity storage (ATA and SCSI) and give us lots of disk slots in the medium/large servers. The money we woulda allocated to the SAN can go to Sun instead if you make it cheap and easy enough.

  21. Why Can't Sun Mgt Get a Clue?

    I’m wondering why Sun’s management can’t seem to get a clue. Sun has three things more than anything else that is holding it back from being a successful company.
    #1: Bickering with every other company on the planet. Sorry, Sun… but face it. Like it or not but MicroSoft is a household name for a reason. It’s dirt simple to use. Point and Click, Not “look at the device tree and try to guess how to attach a printer”. Linux is basically Solaris. But free. With few strings attached. Sto pcomplaining about how all the other companies are against you. That’s what they are supposed to be. In competition with you.
    2: Marketing. As in… get some. As several other have pointed out, ask the average person on the street what Sun is and they’ll reply it’s a big ball of firey gas in the sky. Ask them what an HP or an IBM or Compaq is and they know. Even EMC and Cisco still occassionally advertises their product. But Sun… is silent.
    3: If you’re going to cut jobs. Cut the bean counters, not the people that actually do something. R&D employees perform the function of design and research. Service personel perform services. Managers… well… manage. But bean counters have one function… to tell managers how to get rid of anyone but themselves. Every possible metric that can be measured in Sun is.
    Three simple things to help make profits instead of “saving money”. But, will anyone do it?

  22. PJ

    I have to agree with “Sun’s Marketing Sucks”. They are so incompetent that they can’t market/sell Super Bowl tickets. What’s up with all the renaming of software products/technologies? It seems we need a full time sysadmin just to keep track of Sun Product names. Please keep it simple.

  23. Mr Jonathan,
    I believe this must be a painful decision for you. After 12 years working on software development (mostly Java), now I am studying MBA. I like Sun in many ways, however, I am aware of many issues as well. I dealt with Sun’s people before at my previous work, and I found those people had no PASSION. If the reduction of workforce is simply for cost cutting, I would feel sad for those layoffs. The layoff should be a human capital reconstruction [replacing the WRONG people]. Sun needs people who are bold enough and have great passion about the greatness of future Sun. It may sound cliché but this is so true.
    I would ‘suggest’ you think,
    1. Who are the RIGHT people?
    1. What Sun’s core product is [Java is an augmented product],
    2. There is no enemy, but all potential business partners,
    3. Think different,
    4. Think about employees and their family you are RESPONSIBLE for (not those equity shareholder, they do not care about the company; employees and their families DO),
    5. Sun needs many line LEADERs, not managers,
    6. Find the best well-led and performed division at Sun and find out why it performs so well (most unsuccessful companies, they usually have ignored, but successful divisions).
    I am writing my dissertation and it is about HRM at software company. One of things I am contemplating is to have CEO communicate with the rest at the company directly. Blogging is a good approach and I realise this is what you are doing. This takes courage. I admire yours and think it is the core competency of Sun. Best wishes to Sun.

  24. I agree changes are needed, and more focus within the company. One thing I’m very aware of is the gap between Sun’s product development, and their sales force.I’m a T2000 try & buy client: the program is innovative, and I’m impressed as heck that I could receive a $10K machine on just a shipping address. I absolutely love the machine, too. It’s going back to Sun.Our industry, a new branch of bioimaging, will soon need many, many terabytes of storage, eventually perhaps petabytes, and I’ve been trying to get someone to call us from Sun about storage, with zero response/interest. Sun doesn’t seem to realize that making great products is utterly irrelevant if they can’t be sold.If I get poor service from Sun, why would I recommend them to my own clients? I’ve been trying to discuss Thumper with Sun for months, they keep promising to send an NDA, and never do. Just tell me ‘no’ if you want me to go away, don’t lie to me and lead me on. I’ve learned more in this blog!There’s a lot of fantastic product coming out of Sun right now, what needs to be changed is Sun’s treatment of their customer base. Please make my shares worth something again!

  25. BTW, I completely agree with R. Chuo’s final comment – CEO blogging takes courage indeed. Support for publicly airing our frustrations as well as our kudos is a double-edged sword for the company. Along with the open, trusting approach of the try & buy program, one thing Sun (or at least Jonathan) seems to be doing right here is showing they want to trust and have faith in us. If they can allow us to do the same in them, then Sun will truly be breaking ground on much more than technology.

  26. monte walker

    What is your take on John Dvorak’s “Second Opinion” piece on marketwatch.com? Do you feel there is any credibility in what he says?
    mdw

  27. Hats off to you Jonathan for an incredibly courageous and highly informative blog. Your blog is one of my favorite reads on the web!
    I agree with many comments here, there is a huge gap in execution. It’s the simple things that seem to be hurting Sun—answering inquiries, providing price quotes, etc. I live in the middle east and it took me three weeks just to get a price quote. I followed-up several times and when I finally got a call, it was from a quality auditor checking to see why I was complaining. I never actually got the price quote.
    I also agree with the comments on Sun’s marketing, especially the software products. The software product web pages are very dry. I know that the feature-description-benefit format is the accepted way of marketing a product, and I agree with that approach for hardware, but software is a lot more abstract in nature. I think software is best described visually—screenshots, architecture stacks, data flow diagrams, etc. Sun needs to add more diagrams to its software product pages. Lengthy spec sheets are good when specifying electrical and thermal properties of hardware products, but they are not necessarily the best approach to describing software.
    I commend Sun for its courageous don’t-follow-the-herd strategies. I also commend it for it’s firm belief in industry standards. However, I think Sun shouldn’t be afraid to go it alone when the industry doesn’t move fast enough. It’s been 20 years since the X Windows vs. Sun NeWS battle, and the GUI options on Solaris are either the old and tired CDE, or the open source GNOME, which is still not that robust. Mac OS X has clearly demonstrated that a spectacular graphical interface can be had on a UNIX OS. Sun is not a consumer company, and I’m not saying it should try to better Apple on the GUI front. I’m just trying to illustrate an instance where industry standards are not the way to go.
    I tell people that I continue to believe in Sun for three reasons. One is Sun’s influence on the technology industry, which is very disproportionate to the company’s size (market cap), mostly because of Java. Second, the technologies in Sun’s portfolio are extremely difficult to duplicate (OS & microprocessor). And finally, I tell people that I believe in the man at the helm, the current one as well as the departed one. I have no doubt in my mind that you will prove me right.
    Good luck!

  28. Anon Customer

    This is a start, but just barely.
    At the highest level, Sun never figured out that their biggest revenue channel was becoming a commodity. They are still trying to produce the “best” thing, when their customers want “good enough”.
    Advice for Jonathan:
    1. Stop fighting Linux. Figure out how to make money on it. Buy Novell/Suse.
    2. Figure out how to make some money from Java. Open source it and license use of the “Java” name. Buy a J2EE suite from someone, or get ahead of the game with a non-j2ee spring framework ready-to-run “app server”.
    3. You have great X86 servers. Your enterprise customers don’t want them because they want to run Linux and Windows. You want them to run Solaris X86. Yes, it’s arguably better, but your customers don’t care. Take a cue from Sony’s failures. They dumped money into Betamex till the bitter end, because it was better. They also squandered the Walkman brand with their “better” audio format.
    Don’t tell me you already support Windows and Linux. Every time we visit Sun, the executives bad mouth Windows and Linux. Why should I believe that Sun would be investing the right amount of dollars to ensure they run well ?
    4. Revamp the Marketing department. Sadly, this probably means cleaning house. I’m sure the Marketing job would be easier if Sun would narrow the product line.
    5. Question the internal bravado about Solaris X86. Take a hard look at your numbers. Just because most customers order your X86 server with Solaris X86 doesn’t mean that’s what they really run.
    If you took a serious look at what your customers are running on your servers, you would understand that you *are* in the Linux business.
    Solaris X86 was a great idea, but you waited too long to resurrect it. That ship has sailed.
    Yes, it’s better than linux, but it’s too late.
    See the Sony/Betamax story.
    6. You might have something on the multi-terabyte storage device. But make it an appliance. Don’t make your customers have to load solaris patches on it. It’s a high-margin business, and your only real competition is Netapp. Study what they are doing, and do it better/faster cheaper.
    Find more opportunties like that to get back into
    a high margin business. Sun isn’t Dell, and won’t survive as a commodity vendor.

  29. Anonymous

    Hi Jonathan,
    I have several comments for you. Some very blunt.
    (1) Engineers and Bill Joy – As CEO of Sun, recognizing the various things that Bill Joy did-
    NFS, SunOS and Solaris, Sparc V9, Java that made Sun what it is and the things that did not succeed but were yet significant – Sun386i, Jini, Jxta.
    The shadow of Bill Joy will always be there over everything that was ever great from Sun. You should recognize this and understand and come to
    terms OPENLY with this fact.
    Engineering prowess and concentration gave Sun its
    edge – be it in Sparc processors against Intel, in Operating Systems and Virtual Environments against Microsoft, Applications against Microsoft, Systems against HP. The leadership that
    followed Steve Jobs at Apple was finally
    unsuccessful and you should learn from their
    mistakes. None of them understood the soul of
    Apple.
    There have been others as well and one of them is Andy Bechtolsheim. Publicized folks
    like James Gosling, less publicized ones like
    Les Kohn.
    And it is here that you need to turn – make Engineers leaders – tell your immediate trusted
    mgmt be it Fowler, Rich Green, Grantham or Papadopoulos.
    – Do not become a Sculley or an Amelio
    Look hard into overheads across the org and there
    are likely huge redundancies that can be reoriented to build the next iPOD.
    The key is to say, there are others in Sun who
    understand Hardware, Software, your own expertise is in M&A and Organizational Analysis. The same applies to the heads of your organizations.
    (2) Market Position and Synergies – Sun’s deteriorating position against Behemoths like HP and IBM(and to a lesser extent Dell) have resulted from commoditization of its
    core products- OS, java, processors, systems.
    Each of those companies has a different fall back
    position for Earnings – IBM with services and
    mainframes, HP with Printers, things like OpenView
    and recently PCs, Dell with its PCs, its
    networking business.
    A mix of royalty streams need to be generated to
    supplant the systems front. (Sun needs an iPOD –
    a closed source solution)
    Further, the rumor mill is rife that Sun’s current
    leadership in processors and servers will last
    about 2 years at best as Intel revamps its line
    and Dell moves to Athlon. The answer is to more
    people in Core Engineering(not less), more in
    hardware. More fundamental product making in
    well-established markets. Return to Telcos, return
    to Enterprise with a view to market share and top
    line, not bottom line growth.
    (3) M&A – it has been spectacular and bad –
    Kealia, Afara on the one side and Cobalt, SeeBeyond on the other. The recent strategy seems
    to be as follows. Pay Cash for StorageTek and
    SeeBeyond (to avoid Dilution Cost) and use layoffs
    to pull the synergistic value out. This is a CPA view of how to work through this. Unfortunately,
    this is failing. The reason is the following –
    currently Sun is granted a premium as its parts
    are more valuable than the whole and any effort
    to return to a higher stock price also carries
    costs (like your own options that when exercised
    will add a few million).
    The key is to recognize what WallStreet is saying
    – we reward long term growth potential – if you
    eke out 250 million of annual earnings through layoffs presently that is hardly anything for
    what was once the darling of Wall Street.
    (they will say, “Good, so let us see here what is
    20 times Earnings”)
    Efforts like exiting real-estate are good. Pausing on the ESPP, even a 5% across the board pay-cut on anyone making 6 figures are good.
    However, extensive attrition in Engg. in favor of
    services and sales, Wall Street will recognize
    and will say, “No iPODs or Mainframes here”.
    Cuts must be to help rediscover the “systems
    soul” of Sun. Sun needs to go to a higher volume
    first. Its important to be more than just better.
    Managers in Engg. must be encouraged to pursue High NPV riskier projects in Engineering not low NPV attrition and maintenance activity.
    Consolidated Engg. first before pursuing layoffs.
    Currently you are moving too rapidly on layoffs.
    And Wall Street is not buying the whole picture because there does not seem to a whole picture laid out. Call a TimeOut. Redefine the whole picture. And then get back with a complete plan.
    (4)
    Unpublicized targets for the Services business,
    undefined sales intentions are unlikely to get
    things further. Sun has weakness up the food
    chain – eg services offerings for CRM, Supply Chain, service enablement for Telco’s – Sun does
    not build on top of Oracle, or on Top of OMA DRM
    or Billing Solutions in any big way.
    With so much of the company in Sales and Service,
    the level of value addition reaches diminishing
    returns as there would be more of an interfacing
    role and less of an engg. role.
    The targets for growth are for the half of Sun
    that are selling and servicing.
    The targets for the rest are Engineering better products. You have to wear a different hat when
    you sit with Don Grantham and a different one
    with David Yen, Greg P and James Gosling.
    As you can see, I can publicize myself, but my
    advice is earnest.

  30. Hello Jonathan:
    You have a great challenge and a tremendous opportunity at Sun. Young, brilliant, talented, first time CEO at 40, hand chosen by Scott McNealy with the support of the BoD, and an ex-McKinsey guy to boot. The thing is, Sun is fundamentally a turn around situation. You have more than a year, but less than two, to conceive, design and execute the turn around. Otherwise, you will be flushed like a used Kleenex. I think you know this is true, and in case it’s not top of mind for you at the moment, I want to remind you that, it is true.
    My post is a long one, but hopefully, a good one. I think you will agree, so I ask simply, that you please do, read it through.
    You know, you have to get going on this. You’ve already started well, and you know you have the energy. You even have most of the resources you need, the question is what to do? I will offer my point of view on the answer to this question, but if it is to have any impact on your thinking, a little more demonstration of my, hopefully accurate, understanding of your situation is needed.
    In your first 30 days or so, you’ve talked with major customers, you’ve talked with your management team, you’ve sought input from the Board, and you’ve acted decisively with the cutback announcement, and the blog open communication forum. You do want to be inclusive, and you do want to empower people to do their best at Sun. You know morale is important.
    The rhetoric suggests you’ve conducted a top to bottom review. I’m sure you have, it’s just that we both know that it needs to be at a more detailed, nuts and bolts level, in order to be able to make the courageous decisions that you will need to make. You are comfortable with the big picture at 60,000 feet, and with your sleeves rolled up at 5 feet with a software engineer. You need both perspectives; the brainstorming insight and the nuts and bolts analysis, in order to make the right decisions.
    I understand that you know you have a lot on your plate, and I understand the creative desire to innovate. You can see and feel the challenges and opportunities in the product markets, and the capital markets too. You are well aware of the internal divisional, functional, organizational and people related challenges and decisions that need to be made.
    I know your mind is filled with opportunities in operating systems, software, hardware, integrated solutions, services, as well as in virtually every market segment in which Sun competes. Solaris is a superior operating system, but it is number three or four. How to monetize Java, a la Qualcomm? Sparc is number three; outsource production, or stay integrated? Green energy efficiency and superior price performance to compete against Dell/Linux/MSFT in web servers. Grid computing, free Solaris, free Java, with service and support as the revenue sources?
    Even my mind is filled with opportunities for Sun. I easily get excited about a new Sun Solaris Star Office launch, with a web services, online contemporary flavor, with a direct model a la you-know-who, and launched in advance of Vista. Hmmm, just the software online, or sell the Sun workstation too? But I also know, despite it’s great appeal, that this is not job number one for Sun, or for you in particular, at this moment. It could be a job for someone in Sun however, if the launch costs are low, and it’s a pure assembly and packaging task. My point is that I am aware of the great opportunities you think about, it’s just that I’m also aware of what I perceive to be, the great priorities.
    I also understand that you can almost taste new market opportunities, and that you have a multitude of good ideas, along with the internal proponents of each trying to bang down your door with their specific and tangible proposals, each and every day.
    Thankfully, you start your journey with money, which will give you some time. You do have a nice financial position, cash resources and favorable gross margins. Then there are the acquisitions, which could well make sense. In my mind, from the outside, I liked Brocade at $3/share and Novell at $6, because they looked a lot like Sun – plenty of cash, no debt, and a solid business base with good technology, ripe for transformation. At this moment, I’m less certain about both.
    The brief history of Sun in two great phases, consists of superior workstations in the 80’s and web servers as the millennium turned. Your challenge and opportunity is to be the source and leader of the third wave triumph for Sun.
    You are thinking about transformation and growth opportunities. You do think about substance, not fluff. However you admit, that the three to five core decisions to set clear direction, and turn the ship are a little daunting. Competition is intense, and the business environment is looking a little foggy with interest rate squalls and technology seemingly always a raging storm. The recent tell-tales or revenue growth and market appreciation, may well be a harbinger of good things to come. Still, it is up to you to set course and lead. Setting course requires those three to five big decisions, and to make those decisions, you need hard facts and figures, in addition to the creativity and vision you already possess.
    You know that to make an omelet, you have to break eggs. It is going to get a little messy. Your blog of May 31st and the posts since, are a good illustration of an omelet in the making. You are prepared for that, in fact, you welcome it. You have a myriad of opportunities. How should you assess, and then traverse that myriad? So, we’re back to the earlier, important question: what to do? What guidance can I offer and suggest, to aid you in steering through the myriad of challenges and opportunities?
    Focus on the fundamentals. Sun is a turn around situation. You are a first time CEO with a year or two. Focus on profitability, first. Get profitable. Be successful at that first, and then, reconsider all the technology and market growth initiatives. With the favorable wind of this success at your back, choosing among competing technology investment alternatives will be a tad easier, but more importantly, the capital market and customer support from the profit turnaround, will yield real and tangible benefits in boosting employee morale, productivity and creativity.
    Profitability translation: returns on capital and margin analysis, at the company, division, product, service, customer segment, geographic unit, and channel levels, including the sales force. Simultaneously, and within the same analyses, do competitive benchmarking, and push it as far down as you can, including for example, employee ratios to revenue and profit at the department level.
    The answers (i.e., data, information for decision making) you need to make the important three to five big decisions, lie within the profitability and benchmarking analyses at the product/service/customer segment/geographic market/delivery channel levels. Think of this as a prism, in which you want to look at profitability from several perspectives simultaneously. Doing so, will answer questions regarding how to rationalize and turn around the ship.
    For example, what is the profitability of Sun servers in the domestic US government market sector, compared with service and maintenance contracts, and crossed against sales force performance and profit contribution, at the sales rep level? Who are the best customers, and best sales force members in this particular market? What do these customers need, that they are not getting? What can be learned and communicated from the findings to bolster performance in this market segment, and across the company? How should the marketing mix be altered here, if at all? What does Sun do, that these customers do not need at all? Is R&D directly relevant here? Is it responsive? How does the profit contribution — of this market segment, this product and service, and this sales force group – compare with all the others? What are the implications for overall resource allocation – employee time and cash investment?
    Rationalize, is not a code word for cut. Rationalize can mean, grow or invest too. Be careful here please, to not hear, what I’m not saying. I’m not saying, forget technology, products and markets, and focus exclusively on the numbers and profitability. I’m not saying exclude product market opportunities. Nor should you diminish your awareness and perceptions about technology changes and opportunities. Nor am I saying, don’t think about the competition. In fact, just the opposite, think a lot about the competition. Think a lot about what the markets, both product and capital markets, are telling you right now, both globally and at the all important product/market/customer/channel levels.
    So, I don’t actually have the answers for you, on the — what to do — issue. Just the priorities, and the path. And yes, I do have more specifics for you, but the public blog is not the right forum, and nor is it fair to you. And yes, I would like to assist. And yes, I’m fully capable and experienced in doing just that. But no, this is not pure selling. In full disclosure, I own ~7,500 Sun shares, so I care about Sun and you, independently of any ideas and desire to assist you.
    Thinking more broadly, as I close, consider Carly and Mark. You don’t want to be Carly, you do want to be Mark. Think about how Mark has done it so far. Quietly, and with a reverse engineering of the nuts and bolts, followed by decisive actions, and now a bit of the wind at his back in both capital market and product market terms. At least, that is my perception of how’s he has done it so far. In the technology sector, and in seeking a recent example, is there any better role model to look to than Carly and Mark? Heck, you may be reading this on Sunday morning. Why not give him a ring, and see if he’ll have a cup of coffee with you?
    My best regards and wishes for your success in addressing this great challenge and this great opportunity for you and for Sun.

  31. Bill Board

    It’s amazing that Sun is now #3 in Unix revenue world-wide. Who cares about units when you keep falling in revenue and lose money every quarter. Sorry, but being proud of increasing share a little bit in one quarter? Sun’s biggest mistake is betting the company on the T2000. An interesting curve ball to try to compete, but too much of a niche to be part of a companies IT strategy. When was the last time you saw a CIO say Sun is their strategic partner? The only thing Sun knows how to do is market Solaris and needs to move as fast as possible to AMD. The X4600 is the death nail for UltraSPARC and SPARC64

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