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Will Sun Ever Formulate a Strategy?


By Andrew Binstock
May 15, 2006 — 
Retired army generals, it appears, are not the only ones complaining about leadership at their former employer. John Shoemaker, who was formerly executive vice president of worldwide operations at Sun and later director of its server unit, recently published an extraordinary written indictment of what went wrong at Sun.

Shoemaker’s analysis, which I’ll get into in a moment, is not the mad ramblings of a blogger, but a lengthy essay in Business Horizons, the journal of the Kelley School of Business at Indiana University, where Shoemaker is a member of the Dean’s Advisory Council. So, you would think he knows what he’s talking about.

In the piece, which you can read at tinyurl.com/pjlo9, Shoemaker lists several factors he feels contributed to Sun’s rapid decline. He then explains why things cannot improve until there is a change in leadership. [As we went to press, Sun announced the resignation of its CEO, Scott McNealy. –Ed.]

Shoemaker argues—correctly, in my estimation—that Sun’s SPARC processor architecture has never been competitive. Rather than the chip, what enabled Sun to enjoy success was Solaris, its version of Unix. Specifically, the winner was Solaris’ ability to scale well.

When the Internet bubble came along, Sun was the system of choice because the anticipated traffic boom in those days—before clustered systems were common—required big, scalable, non-mainframe boxes. That is, huge Sun servers. And because Sun had always been a network-oriented company, the Sun/Solaris combo had many features that were particularly appealing to upstart Internet firms and telcos.

Then came the crash, which hit Sun doubly hard, says Shoemaker: Not only did Sun undergo the same contraction other vendors did, but because it had dominated the market segments that were now going bankrupt, there was a huge amount of fairly new Sun inventory available on the market at drastically reduced prices.

Here, in Shoemaker’s estimation, is where Sun’s leadership first really failed. Scott McNealy, the then and current chairman, would not accept the dire nature of the market change and did not cut headcount anywhere near as much as his competitors. Instead of a few dramatic reductions, Sun diminished headcount in a series of feckless moves that undercut morale for a protracted period—making it difficult for the company to get back on its feet.

Morale hit a new low, he says, when Sun’s No. 2 executive, Ed Zander, departed. Zander was a street brawler with some polish and good business instincts, and he was well-respected both inside and outside of Sun. (His remarkable success as CEO of Motorola has conclusively proven his abilities.) Shoemaker laments his departure as a critical lost opportunity and scolds Sun for not bringing in a seasoned replacement from outside the company. Instead, it promoted someone Shoemaker calls “a junior, unproven, internal person to the COO position.” He is referring to Jonathan Schwartz, of course.

Last, Shoemaker addresses the question of x86 sales that are now part of Sun sales. He points out that once scalability went horizontal, toward clusters and grids, rather than larger multiway systems, Solaris’ advantage was minimized, while the performance of SPARC processors in one-way or two-way servers became a liability. So, Sun had no choice but to get into the business of selling x86 boxes (based on AMD processors). How Sun can make headway in this market competing against IBM, HP, and Dell is something neither he nor anyone else cares to speculate on.

Shoemaker’s essay is unsparing but not unfair. However, it stops there. What Shoemaker does not do is make recommendations. And this is, of course, what is needed. Many analysts, including me, have previously written about Sun’s travails but have generally confined remarks to the business matters. What Shoemaker makes clear, however, is that the problem lies squarely with the leadership. Certainly, other analysts have called for McNealy’s head, but mostly on the basis of the lackluster stock performance. However, stock price is not always a good proxy for company health.

A case in point is Oracle. Like Sun, Oracle’s stock price has spent much of the past two years trading within a US$2 range.

However, the companies could not be more different. When Oracle realized that pure-play databases were no longer a growing market, it aggressively went out to obtain the goods it needed. Enterprise software? Check! (JD Edwards, PeopleSoft, Siebel) Open source? Check! (Innovo, Sleepycat) Numerous other acquisitions in areas such as Java application servers, grid computing, collaboration software (and on and on) demonstrate Oracle’s aggressive response to market changes. It has a clear policy of leveraging its DBMS customer base to sell add-on enterprise software packages.

Back to Sun, where we have SPARC servers, x86 boxes, Java, SeeBeyond and StorageTek. There is no announced corporate strategy that unites these disparate technologies, nor is it easy to conjure one that would. This, more than anything, is what suggests that a leadership change is necessary. The bubble is over. Cisco, IBM, HP and Oracle have all established strategies that have led to recovery. When will Sun?

Andrew Binstock is the principal analyst at Pacific Data Works and formerly the editor-in-chief of UNIX Review.


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