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Q&A: Sun's CEO points to revenue gains in servers and storage as proof of the strength of the OEM's product road maps.
 Sun
Microsystems is feeling something that it hasn't felt in several years:
momentum. In the second quarter of 2006, the Santa Clara, Calif.,
company saw server revenue gains
of 15.5 percent—the only top-tier OEM to see revenue growth—and moved
past Dell to take the No. 3 spot among global systems vendors,
according to market researcher IDC, in Framingham, Mass. Sun also is
making strides in the storage space, recently rolling out its "Thumper" server/storage hybrid.
Internally, the company continues to undergo radical change. Sun announced in May a plan to slash its work force by 13 percent—about 5,000 jobs—and founder and longtime CEO Scott McNealy handed over the reins to Jonathan Schwartz.
On Sept. 13, Schwartz and other Sun executives will be in New York
talking to Wall Street analysts about the company's future plans and
giving them the message that, after several disappointing years, it's
back on track.
Schwartz spoke with eWEEK Senior Editor Jeffrey Burt about the changes at Sun, its products and its future.
Can you give us your thoughts on your first 100 days or so in charge of Sun?
The first thing that we did was I and the new team pulled
together a really exhaustive analysis of all of our [R&D]
activities, our market allocations—so, how we put our sales force and
marketing dollars to work—and then just the overall cost structure of
the company, so what we could put together was our best view on how we
achieve some measurable and discreet targets, which we then turned
around in the first 45 days and articulated to the street.
What we said was, we want to grow the company, we want to grow
the profitability of the company and we want to drive to four points of
operating margin—basically four points of profit—in the fourth quarter
of this fiscal year.
Longer term, we actually said we think the market is heating up
and coming our way. To that end, we articulated a longer-term objective
of hitting 10 percentage points of operating profit and, again, trying
to put some meat on the bones. Back when we made the restructuring
announcement, I think it was interesting to people, but really became
kind of declarative to them when the IDC numbers came out and showed
just demonstrable, irrefutable share gains in a [server] market in
which our competitors were really suffering.
That was just amplified by some discreet share gains on the
storage side, and again, I don't think most of the analyst community
really knows how to count some of the emerging trends yet, but we've
seen demonstrable and irrefutable evidence that Solaris as well is
growing, and again, for us, that's the flywheel in our business and
that's what's creating all these new and emerging opportunities, both
in the development community as well as in the IT and deployment
community.
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So we made some pretty sweeping changes inside of Sun, driving
new alignments, driving real systems innovation. Systems for us is the
intersection of computers and storage devices and software platforms
and service platforms.
As we drive towards that evolution in our business, we really
see the market turning towards those who offer whole systems and not
just a cheap box or a piece of free software or a storage disk. They
really want the problem solved and we think we are someone uniquely
qualified to go solve the problem. And again, now we've got some data
behind that. It's not just our articulating a captivating vision of the
future.
In making the changes over the past three months, had you
anticipated being able to leapfrog over Dell for the No. 3 spot so
quickly?
If you go back and read our press releases, what we have been
saying is the adoption of Solaris is the leading indicator of our
server business. By all means, we knew a year ago we were gaining steam
on IBM, [Hewlett-Packard] and Dell, but no one believed us when we said
that the adoption of Solaris was the perfect leading indicator.
When Q4 turned around, we were probably surprised at the
magnitude of the distance we put between ourselves and the competition,
but again, we knew that Solaris was giving us access to customers that
either wanted to move away from their proprietary Unix architectures,
or wanted to move away from vendors who could only come in and say,
hey, I've got a really cheap price for you.
Again, we continued to hear of that momentum in the
marketplace, and not just only from our server customers, but also from
our storage customers.
To be honest, I was a little surprised at the strength of adoption of the Niagara platform.
For the first time, we've exceeded $100 million in one quarter. I was
asked by a Wall Street analyst … who said, 'That was only one deal,
wasn't it? That was Google buying $100 million of Niagara.' And I said,
'No, those were trial units.' And to understand the magnitude of the
momentum we have in the marketplace, no one's going in with large-scale
deployments of Niagara. So with $100 million in business, we were just
planting the seeds in the field.
The other interesting thing is, what's going to happen when those seeds begin to sprout?
Was that $100 million primarily selling into your installed base?
Sixty percent of our try-and-buy units were going to new
customers, so the majority were new customers of those trial units. I
was with one customer yesterday who said he just replaced five IBM
xSeries boxes with the Niagara platform. We're seeing vendors moving
away from box-only solutions, whether they're x86 or as well as SPARC,
and … we've also seen a very aggressive adoption among the PA-RISC
community now that HP, for all intents and purposes, has abandoned
them.
When you look at the SPARC platform for Sun, how do you
envision it evolving, especially in light of your other projects, such
as Opteron and Niagara? For example, you recently took the "Serrano"
[low-end UltraSPARC IIIi+] chip off the board, deciding instead to
focus your energies on Niagara. What does this say about your plans for
the evolution of the traditional SPARC line?
The reason we moved away from the chips that weren't doing well
is because we basically saw such a massive uptake in Niagara. Our view
was, 'Why distract ourselves with stuff that isn't going to be
revolutionary?' To understand the magnitude of growth, we went from
zero to $110 million in six months. So I am thrilled with the idea that
we are going to move away from just incremental innovation and move
toward revolutionary innovation when you see that kind of growth across
the board.
On the high end, I think we're definitely seeing growth. And
again, HP shrank because they end-of-lifed [PA-RISC]. IBM shrank with
[Power5] and P5+, and we gained share not only with the low end with
Niagara, but also in the high end with UltraSPARC IV+.
We are ganging up our resources inside Sun on the winners. We
are actively disinvesting in those areas that we don't think are going
to yield the kind of growth that we want to see. Single-digit growth is
nice; double-digit growth is a lot better. And we've got a lot of it.
What other areas are you looking to disinvest from?
I'd rather focus on where we're investing. We are increasing our
investment in the Solaris platform and in our engagement with the
developer. We are increasing our investment in the open-source and open
community engagements, and that's on hardware as well as software.
Again, Niagara is available through open source now. If you go to
opensource.net. … There's no other non-x86 chip out there that has the
breadth of Linux support that SPARC does now.
We are actively disinvesting in proprietary technology, and in
closed-source software development. [We are] actively looking to
disinvest in areas that don't, for example, leverage Solaris in their
core. There were a lot of systems inside of Sun that were running an
alternative operating system or were not running our server
infrastructure.
To me, another good example of that is we're going to disinvest
in building our own proprietary storage. We're going to continue to
rely on Hitachi and, potentially, EMC. We just announced a new product
called 'Thumper.' We're going to be pouring a huge amount of resources
and effort into driving Thumper across the world, because to me, the
future is about NAS [network-attached storage] and tape. It's the
bookends of the market that are really going to show a lot of the
value. SANs [storage area networks] play a very important role in the
marketplace, but the real growth you're going to see is going to be on
the bookends.
Why are we doing that? Because it allows us to really leverage
being a systems company. … We can build almost anything out of [Solaris
running on a Sun Fire system] from blades to rack-mounts to workgroup
to SMP [symmetric multiprocessing] systems to horizontally scaled
systems, storage and servers. Plus it's all about systems integration,
where you bring all that to bear.
As we go forward, you should expect to see much, much more
coordinated innovation. You will see the evolution of security
technologies not only in Solaris, but in the Niagara chip and in our
StorageTek tape offerings. They will coordinate. Why? Because I don't
know about you, but I've got customers who care about secure software,
about secure servers and secure storage,
but what they really care about is security. So we want to be able to
present to them an umbrella platform for innovation and not just point
products.
What I'm seeing in the market is that the growth margin in
point products is just plummeting. Whether it's free software or a
one-way x86 server, nobody's going to make money on the components. The
only companies that are going to make money are those that lash it all
together in a solution that the customer finds appealing.
You mentioned a possible partnership with EMC. Is that something that's in the works?
We have a very strong partnership today around virtualization with
VMware, and we are a Tier 1 OS support platform for the VMware team.
And we're the only Unix that has that distinction. VMware doesn't
support HP-UX or AIX [IBM's Unix variant]. So what we're really seeing
is a split in the marketplace away from proprietary Unix, and it's the
open-source Unix and the open-source community in general [that are]
really giving us opportunities, and the VMware example is a good one.
We've got more to do with EMC. I think we see the market quite
similarly. And at the end of the day, they also believe in innovation.
We have a lot in common with them.
So you see the possibility that the partnership with EMC will go beyond VMware and into storage.
We're the No. 1 platform for EMC storage today. … So I think there's all kinds of opportunity in the marketplace.
You've talked a lot about Niagara and SPARC development. Where do the Galaxy systems fit in with your overall plan?
It's very definitely at the core. … A fast general-purpose
system displaces all kinds of custom hardware. AMD has been
tremendously successful in the marketplace, and I believe we've played
a very strong role in that. We think there's lots of innovation to
come, but the customer's going to be able to make the choice at the
point of purchase—do I want to put a SPARC chip in this or an AMD chip
in this? But for the most part, the systems will otherwise be
identical. We'll still have the same mechanicals, the same supply
chain, the same standard interfaces, the same software platforms—it's
going to be up to the customer to choose.
Intel seems to have made somewhat of a comeback with its "summer of servers." Are you concerned at all that your AMD-only [x86] product line might be limiting to you?
Intel's made some really interesting press announcements, but at
the end of the day, we want to build what customers want to buy, and
what we've heard consistently from customers—and this is not from Intel
or AMD—is they prefer SPARC and they prefer Opteron. And the numbers
bear that out. … Given the share gains, I think that's pretty much
irrefutable.
Going forward, we want to continue to listen to customers and
present them with the choices they require, and if Intel is able to get
themselves back into the game, by all means we'd be interested in
looking forward. But again, we're going to pretty much stay focused on
what customers are telling us, and what they've told us—and they've
spent their dollars to prove the point, AMD has made tremendous share
gains over the past few years—is that's where they think the market's
headed.
With SPARC and Opteron, we can present customers with a lot of
choice, but that's not to forestall any future choice. We're
pro-customer, we're not anti-vendor.
How much of an advance do you expect Niagara 2 to be over Niagara?
It will be epic. … This is not an incremental innovation. This
is a doubling in thread count, a massive improvement in memory
bandwidth [and] overall performance numbers that are just staggering,
so we expect it to be very disruptive.
I had a very interesting conversation with an executive in our
sales team not too long ago who was yelling at me over the phone
because he had such a huge performance advantage over some of our
competitors that he thought we'd made a tragic mistake in under-pricing
Niagara. He said, 'Don't you understand what a big advantage we have?
Why can't you up-price this thing? If all I do is sell this to my own
customers, my revenue might go down.' And I said, 'Well, you just made
the point. Don't spend all your time selling it to our customers, try
selling it to other people's customers.'
It's selling into the PA-RISC install base that [was] for all
intents and purposes abandoned. Selling to the Power install base
because the Power6 transition doesn't look like it's happening anytime
soon. Selling into the legacy Xeon marketplace because customers can
see a 10-to-1 compression in their power footprints and their data
center space consumption. I think the market's really opening up in
front of us. <
When do you expect Niagara to become a multiple processor architecture?
I don't think we've articulated a date. … We have Niagara 2
systems up and running today, and they are wicked fast. And the good
news is, all the portfolio of applications that are out there running
Solaris today, they just run [on Niagara 2]. No new work. A lot of
peers in the marketplace seem to want to introduce the next new
generation chip set, but then they always break the application
binaries, which ISVs hate, because they have to go back and hit the
reset button and rebuild their systems.
One of the great things about Sun—one of our little secret
weapons—is that customers don't have to do any work to get our new
upgrade. That's why we're seeing such a big adoption of Solaris 10, and
frankly such a big adoption of [UltraSPARC] IV+ and Niagara systems.
That will now start to apply to our storage systems as well,
with Thumper as really the first foray into that space, and that will
begin to spawn a whole series and breadth of NAS offerings.
As well, you'll see Solaris start to play a much more prominent role in the traditional archiving and tape offerings.
What are you seeing regarding trends in corporate buying? Some analysts believe it's beginning to slow.
We've seen no evidence of slowing whatever globally. What we've
seen is a slowing of system purchases from vendors who are
end-of-lifing their platforms. You should expect to see HP's PA-RISC
customers slow down, as they did last quarter, because they
end-of-lifed it. … If you announce that you're going to kill something
in the marketplace, people just aren't going to buy as much of it.
On the Dell side, I think we've seen a slowing of point-product
purchases. A slowing of customers saying, 'Oh, procurement is in
charge, when all they care about is a cheap box.' And now I think we're
moving toward IT leaders being in charge, because also procurement was
able to go to a white box vendor—you now find yourself trying to
support 17 different service processors and 14 different drive
manufacturers because procurement was able to build your data center
out of the cheapest parts available. But now you've been saddled with
the operational costs of running it and that absolutely dwarfs the
purchase price.
I think we're seeing a movement in the pendulum away from
procurement as the architect of the data center toward IT leaders and
technologists architecting data centers.
I think that's representative of a split in the marketplace.
Customers are really turning into those for whom procurement will
forever be in charge and customers for whom architects and business
innovators will be in charge. There are a lot of companies out there
who make their living selling to customers for whom procurement is in
charge. Those folks just care about the cheapest possible box once a
month, or the cheapest possible printers or the cheapest possible PCs.
That's not our core market. Our core market are those network operators
or service providers who make money off of innovation in the data
center.
There's the traditional enterprise and the emerging
next-generation service operators. My advice to a customer looking at
[CRM (customer relationship management)] solutions is, rather than
exploring how you can architect your own, why don't you go to
Salesforce.com? So guess who we're going to be focusing our time on?
We're going to do our best to try and be the world's best vendor and
partner to Salesforce.com.
But that means we're going to stay out of trying to sell to
flower shops and shopping malls or dentists offices, [all] of whom, by
the way, purchase a tremendous amount of IT in aggregate, but over the
long term, they'll stop buying IT, they'll start buying services from
companies like eBay and Yahoo and Salesforce.com, who are Sun's
customers.
All that said, if you hang out on Wall Street … those are
companies the make their living on the basis of technology advantage,
and our technology and our road map deliver competitive advantage to
those folks. That's why they're interested.
What's going to be your message to Wall Street, given the amount of success Sun has had in the past with it?
The message is going to be a very simple one, which is, we're
still listening. We're there to give folks an update on the innovation
and the technology road map and we're here to say, "Thank you for the
feedback you've given us historically, and we're still open for
business and we're still looking for the next wave and we've got eyes
and ears open and we want to know what we can do better."
Sun executives have said the plan is to open-source the
entire software stack. Can you give us more specifics as far as
timelines and frameworks?
As soon as humanely possible. I'm not just being glib as I say
that. I want you to know why it takes time for us to open-source
software. We are not dragging our feet in the least. If anything, I
have our legal teams working day and night to get this stuff done, but
at the end of the day, I must be able to tell a customer, 'I will
indemnify you for the technology you use to run your hospital. I will
indemnify you for the technology you will use to run your carrier fleet
or to run your bank network.'
I cannot deliver to customers technology I cannot indemnify.
…[Do] you remember when BlackBerry was being sued, or more recently
when EchoStar was being sued for the usage of Tivo? They actually
threatened to turn off people's Tivo systems. I can't risk that
disruption to the customer base, so what we do at Sun is we indemnify
our users when they use our products. I'm not going to open-source any
technology, or introduce any product in to the marketplace, that I
cannot protect at that level.
I know a lot of other vendors who have kind of skipped over
that and said it doesn't matter. That's not our customer base. So I
want to be sure that for every product we deliver—whether it is Java or
Solaris or any element of our microprocessor code—that we will
open-source all of our products, we will open-source them under
OSI-approved licenses, we will work with the community to establish the
most effective governance and cooperative development model, and then
at the end of the day, I will protect our customers.
Can you give us an idea about what software is next in line?
The Java platform seems like it's kind of topical. We're looking
at engaging with the community to pick the right license. There's all
kinds of choice we have in front of us. … We're going to continue
looking at what the right options are.
The net of all this to Sun? The market is definitely growing.
We can see the opportunity is definitely growing. The world is not
going to consumer fewer network infrastructures next year than they did
this year. The whole world is tipping toward the Internet. To me, that
means the whole world is tipping toward Sun.
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