Bearish on Sun



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June 1, 2002 —  (Page 1 of 2)
A series of generally disappointing moves was announced by Sun Microsystems Inc. in late April. The changes involved software strategy and departures of key personnel. I'll get into them in a moment, but first I want to discuss Sun's overall situation.

You recall that Sun emerged years ago as a high-powered workstation vendor (which is why its Nasdaq symbol is still SUNW). It successfully maintained a ferocious competition in the workstation market against Hewlett-Packard, IBM and Silicon Graphics (SGI). However, the arrival of high-powered, dual-processing Intel workstations and reliable-enough operating systems from Microsoft flushed Sun and most of the other Unix vendors from the workstation market.

SGI's fate, in particular, was telling. The company's products were the cream of the workstation offerings and inspired a cultlike devotion in customers, especially in the media and graphics industries. As Intel and Sun eroded the bottom of the workstation market out from under SGI, they chased the vendor up to the very highest point of the pyramid. Once there, SGI had no place to go. Everyone who wanted an SGI workstation had one. And many who had them began to upgrade to less-expensive boxes from Intel and Sun. SGI suffered a terrible fall from which it never recovered.

At this juncture, Sun moved into servers while keeping a hand in the workstation market. The core focus, however, was the big boxes. Here the competition was much larger business units at HP and IBM. Despite such opposition, Sun made considerable headway in the server market due to timing: The Internet bubble was forming, Sun jumped on it, and Sun's competitors were slow to respond. As a result, Sun's marketing could claim it was the inspiration for the Web and the Internet with such slogans as "We put the dot in dot-com," whose exact meaning is still unclear to me years later. In addition, Sun rode the wave of Java-a wonderful product that powered much of the software development of the last few years. As a result, Sun rose and fell in perfect synchronization with the Internet bubble. And so the question now is: How does Sun rise again?




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