Newsmaker: McNealy on message

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Fujitsu coming out early next year. We've got Niagara in early access right now, our 32-thread, eight-core chip multithreading environment. Niagara II will tape out this year, and Rock will tape out next year, which is our high-end machine. So you look just on the microprocessor side, what we've done in the last three years from one 900MHz underpowered product to what we're doing. We're leveraging every single microprocessor out there except two: Itanium--ha ha--and Power, which with OpenSolaris out there, we might be able to leverage with a Power port.

We're grabbing that word and saying, of anybody, we own the word "share." We own that space.

What are we doing in the OS world? I think Solaris 10, now open-sourced, is the best new product we've introduced in 10 years--with DTrace, with ZFS, with containers, with trusted Solaris features, with the new, fast IP stack, with the self-healing features, with the coming ability to run Red Hat applications native, and simultaneous support of Intel, AMD and Sparc. Then we open-sourced it and priced it for free.

We are now at 2.5 billion Java devices on the planet--(including) 700 million cell phones, 700 million PCs. We had 17 million and 20 million downloads in the last couple months of the J2SE environment. That is a stunning number. The new Blu-Ray spec is going to put a Java virtual machine in every new next-generation DVD player, and all your DVDs are going to have Java bytecode on (them) that gets executed.

What else have we fixed? The Java Enterprise System. I think we have a good chance of breaking through a half a million subscribers with our Web services stack at some very unique pricing models. I think we're going to be the player in Web services. People are tired of doing best of breed--tired of getting their directory server from Novell, their file system from Veritas and their app server from BEA and putting that all together. The Microsoft relationship is a very unique selling proposition.

How do you think the OpenSolaris launch went? Have you learned anything since you put it out there?
McNealy: I always make the Al Gore-ish statement that we invented community development. We started doing community development before we got founded. Three or four years before we founded Sun, one of our founders (Bill Joy) was pioneering the idea of open-source community-developed kernels in the operating system space, doing BSD licensing models with the Berkeley Software Distribution. We were the Red Hat of Berkeley before Linus (Torvalds, the Linux founder) was out of diapers.

Is there anything we've learned new around community development? During the late 1980s and early 1990s we let Solaris get encumbered as we were trying to build features and compete with mainframe OSes. Plus the fact that we did the AT&T Unix System V Release 4 base, which required us to buy our way out of the SCO license. It just occurred to us, probably six or seven years ago, that we can't do what we want to do with the source code here. We spent a long, long time getting the encumbrances out. They kind of spaghettied themselves deeply into the operating environment. The one thing we learned was just don't let the stuff get encumbered again. That was the mistake we made, by going too fast too quick. By going a little slower and letting the community help, we wouldn't have gotten encumbered. We would have been in better shape if we'd kept it open source along the way.

We've never had higher customer satisfaction with respect to how our product works, how it stays up out in the field. That was not true back in the (dot-com) bubble. We were just getting the stuff out the door as fast as we could, and that wasn't a good thing.

How does StorageTek fit in?
McNealy: We have done very well in the server space. We have lagged in market penetration on the data management side...We have a 25 percent, plus or minus a few points, storage attach rate. It should be 70 or 80 percent. We're aren't even getting the bun with our burger, much less the fries, the milk shake and the hot apple pie.

(In the storage market,) there's NetApp, there's EMC, there's IBM, there's Sun, and there's the old Compaq storage business. We have better product now than EMC. The (StorEdge) 6920 with Pirus virtualization and provisioning blows the doors off the EMC product line. What we've done with Hitachi in the high end, Dot Hill in the low end, Seagate and LSI Logic--we have integrated all this into a wonderful environment. It's a wonderful story. We have no way to bring this to market.

All of a sudden we grow by over an order of magnitude the number of data storage sales specialists we have in the field, plus a couple thousand service folks. Why do people choose EMC over us? They trust EMC. StorageTek has a very outstanding reputation of safeguarding their data asset. StorageTek has 17,000 customers. They archive 36 percent of the planet's archived data on their tape libraries. All these tape libraries are tied to IBM mainframes. You'll trade out your mainframe before you trade out your tape library.

Everybody says tape's going away. I don't think so. It hasn't been going away for 20 years like everybody's said. And only more stuff is getting archived. Think about all these camera clicks that are going to get archived. With HIPAA and Sarbanes-Oxley (regulations), the world is only going to need to archive more.

Financially it made a lot of sense. We were making $100 million on the $3 billion, pretax. StorageTek is making several hundred million dollars, pretax. It's immediately accretive, non-GAAP. From a cash flow perspective, they're generating cash, we're generating cash. We don't need to have any revenue synergies to have this be a positive for our shareholders. Any cost synergies are all upside. The problem with the Compaq-HP merger is it was all about cost synergies, and cost synergies are very disruptive.

Since they're profitable and going up, do you think that'll get you out of your GAAP jail so you'll be able to tell your story?
McNealy: We're very close. Last quarter, we lost $3 million dollars. We are nine months into this fiscal year. Year-over-year, on an operating margin basis, we have improved for the first nine months, year-over-year, $550 million. If you believe what the analysts say, it's going to be between a $700 million and $800 million improvement year-over-year in operating margins, pretax, pre-GAAP, pre-one-time any of that stuff. That, on an $11 billion or so revenue run rate, is stunning. If I do that again next year, move over Jack Welch in the hall of fame.  

More Newsmakers

[JLBer]

Sun's problem

I hope they're not too late, but the fact is that the arrogance and stubbornness of those at the top (McNealy included) are why Sun is where they are.

There is absolutely no doubt in my mind that the combination of Solaris and Sun's mid-range and upper-range hardware is superior to all other server/OS combinations out there. Mature operating system; harder-than-rock solid; scales to more processors than most other operating systems combined; capable of handling just about anything that gets thrown onto it. But when it comes to looking towards the future, Sun dropped the ball - big time.

* Sun kept riding the anti-Microsoft train even after their customers started to tell them that the train wasn't going anywhere.

* Sun kept Solaris as closed source much longer than they should have. Linux has been out there for how long now? Five years? Ten? Solaris became partially open source a few weeks ago even though the Solaris developers in the world have been begging Sun to make the source available for years.

* Sun still has no clue about what "user friendliness" means. They release Java Desktop System to appeal to the end user while making it user-unfriendly. Compare what JDS comes with then look at true user-friendly distributions like SimplyMEPIS Linux. Wow. JDS lets users get easy access to Star Office. That's about it. MEPIS puts hundreds of utilities and applications right on the menu. There is no comparison. When it comes to user-friendliness MEPIS Linux completely decimates Sun. For whatever reason, Sun just can't comprehend that the non-geek dwarfs the geek market by orders of magnitutde, yet Sun still designs Solaris for geeks.

* Sun's hardware has always been {censored}ing expensive just because of the Sun brand name. Sun continued that even after companies were getting rid of Sun workstations in droves. Let's see here. A 3+ GHz (enter brand name) PC/workstation loaded with a huge hard drive and gobs of memory for less than $2,000 or a 1.2 GHz Sun Blade with 1/2 the memory and 1/2 the hard drive for $5,000. Can you say "no brainer"?

Even now, a 650 MHz Sun Blade 100 **STARTS** at $1,350. I just within the past two months built a crushing Athlon 64 3200, 1 GB RAM, GeForce 6600GT, and 360 GB of total drive space for less than $1,000. If I built the same kind of system that was 100% compatible with Solaris x86, I'd have a homebrew system that CRUSHES current Sun Workstations in that price range. Oh, wait -- there ARE NO Sun workstations in that price range.

It all seems to me that McNealy and Co. rode the "Sun brand name" gravy train far longer than they should have. It's time that they not only got off that train but also let it run off the broken bridge over the gorge ahead so that they can build a new train - one that the public is more willing to ride - with MUCH lower ticket prices, more fringe benfits, and comfortable seating for everyone. (Okay, that the end of the train metaphor.)

Sorry for the novel, but I needed to get this off my chest. Sun's clueless. That's the whole problem. They're completely clueless to the fact that we're no longer in the period before the tech bubble burst. Customers want more for less and Sun's not delivering on that.

[Stomfi]

Excellent Comment

I got my first Sun in '84. Excellent product, price and strategy. When Bill Joy retired to the back room and Sun say things like 32bits is good enough, I'd also had enough.
So they invented OSS, why didn't they keep at it if it was so good, instead of selling overpriced proprietary closed systems.
Arrogance is only good when you are battling arrogance. Sun vs MS, but of negative value against a collective community target like Linux.
Time to move on Scott.

[toddbernhard]

Complaints don't add up...

You're comparing (relatively) ancient SPARC machines w/ modern x86 PCs... Actually, Sun sells AMD Opteron x86-64 machines too, for $1495. And it's fully supported versus your "homebrew" PC. And they offer a Dual CPU workstation for about $1K more.

And that's not even recent news. So your point that you can buy/build a state of the art PC for $2000 is meaningless, or better yet, proves that Sun *does* get it.

Same w/ your other comments, i.e. stop bashing Microsoft (which they did over a year ago, and got a huge payout for doing so...so maybe the bashing paid off? It's like getting StorageTek for free)). And opening Solaris...

It seems like your real comments are that they did the right things, only too late.

But your timing re x86 h/w and Microsoft relations seem off, by a year or so, so really, you're endorsing Sun's strategy *and* timing.

If the remaining comment, that their JDS implementation of SuSE Linux isn't friendly enough is all that's left, that's debateable.

Plus, check out Looking Glass...like you, I wish it was commercialized sooner, but if the worst you can say is right strategy, right products, right prices, just want it sooner...that's a common observation for many companies/technologies (MS Longhorn, x86 Mac, Hybrid cars, etc.)

Enjoy, Scott!

Scott needs to stop railing against GAAP and focus on the real problems facing his company. Sun?s market share across the board continues to decline, and the issues he and Sun face are all of which are his own creation. For example - in StorageTek they've made yet another strategic blunder, with an acquisition in an area that won?t deliver any real growth over the long-term. Sun continues to lose money, and now they have depleted half their cash hoard - money they'll need to survive over the long-term.

What?s more, Sun's track record in storage (see IDC numbers)and acquisitions (see Cobalt) has been pitiful over the years -- it's highly unlikely that they will make good use of StorageTek assets. Scott boasts about picking up several thousand services specialists, but the reality is that StorageTek?s services business is geographically weak, and focused primarily on low-margin break/fix issues. Scott also talked about leveraging StorageTek?s expertise in mainframes, but IBM?s mainframe business has been declining of late, and it?s unlikely that Sam and his boys will have any desire to play in the same sandbox with Scott anyway.

Sun expects the StorageTek deal to add to their profit, but this won't take place for another 18 months -- drag on the bottom line until then. In the interim, customers will suffer and look elsewhere for server and storage solutions, and the inevitable decline of market share will continue for Sun. One thing that will fit in nicely with Sun ? StorageTek?s notoriously low employee morale ? misery truly does love company - enjoy, Scott!

Scott, What About OSX?

McNealy:

"We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat."

See, this is part of the problem. Scott doesn't even mention OSX, as if Apple were the one having market problems instead of Sun. Did Scott miss the big Apple-Intel announcement? Why hasn't Sun tried partnering with Apple?

The answer is that Sun likes to try to define market reality while ignoring what people are actually considering buying. As long as Sun keeps playing these games of ignorning what is really going on in the market, while trying to get people to believe Scott's spin, the problems at Sun will persist.

[Shankland]

reporter responds: McNealy was talking about server OSes

A little extra information for you that didn't make it into the report we published: McNealy later qualified his remarks about Mac OS X by saying that he was talking about server operating systems, not personal computer operating systems.

Sun's OSX Olive Branch

Hello T,

Sun has tried to partner with Apple. See Jonathan Schwartz open invitation in his blog.

http://www.blogs.sun.com/roller/page/jonathan/20050605

[John Kuzak]

miss the big Apple

http://www.analogstereo.com/vacuum/miele_s4_compact_vacuum.htm

[mboaglio]

processor roadmap failure

I think the worst desicion Sun had made was to stop developing processors with more computing power per core.
As a long time Sun user (over 80% of our datacenter is over Sun systems), we were forced to start looking over IBM and HP for our Oracle databases.
If you licence Oracle per processor (sometimes is the only way to go), you have to pay more than the double of the cost of doing the same thing over other vendors.
This is because the Ultra sparc IV has two cores that count as a separate processor for Oracle licensing.
Without getting too techical, if you look roughly at TPMCs figures for SPARCS vs POWER5 or ITANIUM (from a teorethical one-core point of view) ... SPARCS have 1/2 of the computing power of the other two.
This has a huge impact when you are analyzing TCOs triggered by the need to replace an old Oracle system.
My guess is that Sun will be losing their Oracle customer base in the following years if they don't do something with their processors, or make Oracle do something about licensing!

Scott would need a 4"x6" to get that job done

Larry Ellison needs to fix the Oracle licensing schema or he will find Oracle relegated to only the deepest of wallets. My guess is that he will come around if he wants to stay in the database business. My observation is that most of the other databases have already said that they will not require licenses for each core. The open source database capabilities are also maturing begging the question of Why spend big bucks for an overly bloated database when there are satisfactory cheaper alternatives?

Partnership

There's an agreement between Sun and Oracle to solve the license problems regarding dual core Ultra SPARC IV processors.

Geeks will survive

When we talk about Sun, one lasting topic is
Sun is falling, this theme has been on for almost 20 years!
Just hope Sun can continue to amaze the Sun haters/IBM lovers by providing new innovations and offerings, such as the open solaris!
The world will be better off if Sun stays above the horizon, competition is good and choice is good!

SALES are hurting SUN

Let me start with the PC disclaimer, I like Sun and their products. However, I make my living from Microsoft?s products. Currently, I am working a contract in Iraq clearing up a Microsoft deployment.

From my seat, Sun?s biggest issue is SALES!

Have you ever tried to deal with Sun?

It isn?t easy trying to get Fortress Sun to answer a SMB call. But why should I have to beat the fortress walls down? They should make it EASY to work with them. Instead, you need the decoder ring, and the secret handshake to get their sales staff to answer a question.

I finally did speak to a pleasant sales person (after 10 weeks). She was very cordial and while she didn?t know anything about Sun Ray technology, she said she would look into it. I sent the link to their Sun Ray pages so she could research it. One day, I hope to hear back?

Sun took the same approach as Apple, integrate hardware with a great OS and control the environment. The argument from Steve Jobs is; ?Being BMW with 5% market share is not so bad. Who wouldn?t want to run BMW??

Actually, a better analogy for Sun would be Oshkosh trucks. They are a powerful player in their niche, with a product that their core market knows, but the rest of the world has no clue to. With a dedicated group of engineers and workers rolling out the best product in their small niches, they are on a solid growth path.

Once you get Sun configured, it is solid. Techies seem to know this, but techies only suggest, they do not cut the checks. Sun will never be IBM or Microsoft, nor do they want to be. However, they need to get the market moving for the niches they want to dominate. Thankfully, they have matured past beating up Microsoft.


I received an offer for a free Sun server as a developer last week, if I meet their conditions. $50,000 in start up capital or some other choices were available to receive their offer. If I had $50,000 in start up capital, I wouldn?t need a free server.

Meanwhile, I just renewed my Microsoft Action Pack subscription. More software than I could ever load for $300.00. I can run my entire business and test applications all day long with it. Now that gets a lot of small consultants moving towards their products.

TIME is your enemy. Get a small unit to move quickly! Has anyone at the C level been to a Toyota design shop or factory? Your product line is being refreshed but way behind the other players. Your main competitor is not IBM or HP, it is TIME. And right now, you are losing.

Where is the Gorilla.sun.com web site? Who is pushing the smaller markets at Sun? What VP is charged with creating new markets? They need to grow demand from the small/midsize markets. Have you looked at donating Sun Ray setups to school districts? Stop selling the stuff at a discount at the end of its life on E-bay. Install it and show new customers what it can do. All of the Fortune 1000 have built their Oracle warehouses. The small markets need to be attacked and attacked HARD!

Pre-bundle your offerings. Make it EASY to deploy the systems in a SMB. Offer standard packages. It shouldn?t take a $300/hour consultant to install a server. That, with the hardware margins, is just too much for a SMB to understand from a value perspective. If a Windows IT person can not integrate it in a weekend, it is not ready to ship to a SMB.

Get real on your workstations or dump the product line. Subcontract them to someone who can work with AMD and get your price/performance credible for the desktop or partner with Apple.

Finally, I emailed the saleswoman at Sun about the market here in Iraq. Similar issues involving security, etc. I asked if there was any way to get a demo unit to prove it works to a Microsoft trained staff/client base. I think she is still laughing. Too bad too, there are hundreds of laptops that could be replaced.

On Message? What Message?

I read it twice but I can't see how any of this gets Sun out of
commodity hell. The Webtone switch that Scott talks about is
being built on Intel, Linux/BSD, PHP, Apache, and even open-
source Java (for which Sun gets no $$ GAAP)... On the other
side: Microsoft is playing the integrattion game from desktop to
office productivity to infrastructure server application and they
are doing it very well too. They have the users and the assets...
and say what you will, they have the end to end "vision". So can
someone summarize why Sun will be more relevant in the
future? And why the "Microsoft relationship" helps (except with
the $$ GAAP issues)..

[toddbernhard]

Say what? "32 bits good enough"

Sun was 64-bit in 1994...with the Ultra 1. (I was with Sun from 1988 to 1993, and a contractor from 1993 to 2004).

Bit of a stretch to say Sun was behind the curve on 64-bits.

In fact, the Sun Ultra 1 shipped just a month before the Nintendo 64, which was a 64-bit machine, BTW...even kids knew 64-bits was better than 32, long before Intel caught up.

[John Kuzak]

1988 to 1993

http://www.analogstereo.com/vacuum/miele_s291_vacuum_carmine_red.htm

[toddbernhard]

Solaris runs on x86!

Sheez, I guess Scott was right that the message isn't getting out.

Yes, Solaris runs on x86 PCs, and has for years. First it was free, then $100, but now, Solaris 10 is open source. So you can download it and run it at no charge. Said so in the article, and OpenSolaris.org, so on.

[toddbernhard]

Wow! $895 Opteron announced today!

And I thought $1495 was reasonable! Sun just announce an $895 Opteron screamer today! Price is no longer a valid criticism.