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End of days for Sun


By Alex Handy
August 14, 2009 — 
Sun Microsystems passed away on July 16, 2009. On that day, the company's shareholders voted to accept the merger agreement, proposed by Oracle, to purchase the company for US$5.6 billion, or $9.50 per share. Sun's CEO, Jonathan Schwartz, and its chairman of the board and cofounder, Scott McNealy, were not present for the shareholder vote.

Only nine years ago, Sun's stock was at $257 per share, with a market cap of almost $100 billion, and the company was making its own multi-billion-dollar acquisitions. So how did it all go bad? Sun executives would not comment for this story, but sources say that the company’s downfall came thanks to bungled acquisitions and an inability to turn technological innovation into reliable streams of money.

“Sun Microsystems is the Jack Kevorkian of technology acquirers,” said Bill Roth, former group manager at Sun from 1997 to 2003, where he supervised the launch of Java EE and Open Office. He said Sun frequently squandered acquired technology, and that its failure to address this pattern led to its ultimate demise.

“Look at all the acquisitions Sun made form 1996 through 2006, and I think you'll see that two out of the 40 did not fail. One was the piece they bought from Cray [in 1996 Sun purchased the Cray Business Systems Division from Silicon Graphics, and used the technology to create a new backplane board for its servers], the other you could argue was StorageTek,” said Roth. He highlighted the company's $2 billion purchase of Web server producer Cobalt Networks as symbolic of botched acquisitions.

Cobalt was a hot property in 2000 when Sun purchased it. Cobalt made one of the first dedicated commercial Web servers, but when Sun acquired Cobalt, it imposed supply chain restrictions that forced the smaller company to use Sun's hardware providers. As Cobalt was an Intel-based platform, Roth said that these supply chain restrictions resulted in a nine-month period after the acquisition during which Cobalt couldn't produce any of its servers for sale. In that time, the company's slim market lead was lost.

“Sun was probably the greatest corporate navel-gazer in history,” said Roth. “By that I mean they truly believed in their own abilities and their own manifest destiny. At the end of the day, Sun was killed by hubris, the hubris that says, 'I can make a profitable company spending twice as much on overhead as I do on research and development.'

“The management at Sun was consistently like the crow that gets attracted by the shiny object,” said Roth. “I will admit to having participated in some of that in my time there. But had they stuck to making great hardware and focusing on developers and developer tools, they'd be a different company today. I think hardcore businesspeople will run the business a little differently.”

Open failures
One project that failed to live up to its potential is OpenOffice.org. Originally acquired for around $27 million from a German company, Roth estimated that Sun spent around $10 million a year on the project after it was acquired. Yet even when giving away this productivity suite for free, Microsoft remained firmly entrenched as the market leader. Microsoft, though, was able to grab huge portions of market share when it gave away its Web browser for free in the late 1990s.

“I think it is a perfect manifestation of the ongoing dichotomy and struggle that is Sun Microsystems,” said Jay Lyman, analyst with the 451 Group, adding that it played to a fundamental problem at Sun’s very core.

“There's always been the question, 'Is Sun a software or a hardware company?' ” said Lyman. “As one has improved, the other has become more of an issue. That's where we find ourselves last year. While they improved their approach with open-source software and developers, they struggled with execution and maybe even overall identity as a company.”

Other software efforts were similarly ineffective in the marketplace. Roth said that Sun's Java groups were rarely profitable.

Top-heavy
In 1997, Roman Stanek founded a Czech company to commercialize NetBeans, which was created as a student project at Charles University in Prague, Czech Republic. Two years later, it was acquired by Sun and released as open-source software. Stanek said he believes Sun failed to capitalize on the technology and ultimately lost its leading position as an open-source developer community to IBM’s open-source release of Eclipse.

Part of the problem, Stanek said, is that Sun as a technology company did not have a core business that could be counted on year in and year out to maintain revenue levels.

For example, in one year, said Stanek, servers based on Sun’s SPARC microprocessors could have been popular, but the next year, customers might want Dell servers based on newer Intel chips. While other ”big-iron” companies like Hewlett-Packard and IBM were also subject to such winds of change, they could fall back onto core business services for dependable revenue.

Focusing on business profitability and stability was supposed to be a core goal of the Jonathan Schwartz era. Schwartz came to Sun in 1996 when it acquired his company, Lighthouse Design, and became Sun’s president in 2004. But when he took the job of CEO in 2006, Schwartz talked more about changing the world with cell phones and raising revenues from existing business units than about turning Sun into a services company.

Though Schwartz's vision for Sun was one of giving away open-source software and selling service and support, the company was unable to fully execute on that and build a services division.

And now, Oracle gets to pick up the pieces, perhaps to make Java and Solaris profitable, or to let some of these pieces wither on the vine and die—like Sun’s old executives did to the company.


Related Search Term(s): Sun


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Comments

08/14/2009 09:40:10 AM EST

Roth is partially correct. The once proud company was ruined by business-retard Schwartz and his gang of incompetents. The Sun stopped innovating is the day the company died, and that day corresponds with the day Schwartz took over.

United StatesMaybe


08/15/2009 04:55:24 AM EST

Roth is not correct when he states that the acquisition of Storagetek was "not a failure" .. it was ... ! STK was turning 10% Net Income year after year when Sun bought the company and Sun was loosing loosing money ... and what happened ? Not a single executive bothered to see what was the management structure that generated such a result. Sun treated former STK employees and executives with contempt and laid off almost everyone in the next 3 years. Sun main failure was to think that it hold the truth to everyting and did not need to learn from others. Whilst the company was piling layer over layer of people intervening in everything but responsible for not much, people were not talking to each other, everyone narrowingly concentrated on its own little patch totally ignoring the others .. High IQ and presentation skills is not enough to run a company .. any B school graduate can design a strategy plan .. the real problem is in execution where Sun top execs lamentably failed.

FranceJean-Marc Chwialkowski


08/16/2009 09:21:16 AM EST

Sorry, Maybe. I can't agree. Sun was into navel-gazing back in the 90s in an insanely self-destructive way. Remember Sun's firewall and Novell IPX-IP gateways, the Netras, etc.? They were releasing them unfinished with horrifically bad administrative interfaces and full of show-stopper bugs. Did they fix them? Did they, hell! As a good example, the IP to IPX gateway got dropped almost before they even shipped the product. Sun was consistently releasing product that was pure crap and telling its customers, and just as importantly, itself that it was a market leader in all these markets. It was simply terrible at shipping product that worked. More examples: Cobalt RAQ, Javastations, mail systems. 143Mhz UltraSPARC workstations for $7000 in an era of the 500Mhz Pentium II. This article is spot on. And kudos for telling the truth.

CanadaSteve


08/17/2009 02:27:25 PM EST

Without internal innovation, your firm is toast. It is a constant battle between the "If you don't obsolete yourself, your competition will" and "There comes a time in every project where you have to shoot the engineer and go to market". The former (innovate) will grow your company and share price. The latter (stagnate) will give you a couple of great quarters to pump up that bonus and golden parachute. So if you don't have technical cojones (technical term), don't join the management team or board of a high tech company. Sign on with a food company where all you have to worry about is not having a salmonella outbreak.

United StatesTom Mariner


08/17/2009 11:54:18 PM EST

Hubris doesn't begin to describe Sun. They were messianic. In 1992 I was a true believer. I thought SPARC would take over the world. It was an "open" platform! It was RISC! The scales fell from my eyes when Sun killed off Solbourne computer by raising the license fees. Yes...SPARC was only open as long as no one threatened Sun's revenue stream. I crossed over to Microsoft technologies and never looked back.

United StatesBob Rundle


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