The Pervasive Data Center

Last month I wrote about how Fujitsu is getting more serious about being an integrated worldwide business--rather than a Japanese company that sells elsewhere only opportunistically. Since then, I've spent a couple of days in Tokyo at the NEC Global Analyst Summit. Like Fujitsu, NEC is a Japanese electronics manufacturer with a long history (dating back to 1899) and a wide range of product lines. And it, too, has had less success selling IT equipment to North American enterprises than it would have liked.

Like its long-standing competitor, that's a state of affairs that NEC wants to change. There are some conceptual similarities to what the two companies are trying to accomplish. High-level executives at both talk of better aligning corporate initiatives and product plans with the global market taken as a whole. But look a little deeper and there are quite a few differences in both approach and execution that reflect--at least in part--differences in market position and existing assets. Here are some observations about what NEC is doing and why. (My earlier post offers a perspective from the Fujitsu angle for comparison.)

First, let's talk about NEC as a whole. The company brings in about $46 billion annually through a combination of IT, network, and carrier communications products and services; NEC started out making telephones and switches as a joint venture with Western Electric. And the integration of computers and communications, C&C, continues to be a big part of what NEC sees as its differentiation. It's held the No. 1 market share position in x86 servers in Japan for 12 years and currently sells about 24 percent of the total units in that market--in addition to leading or close-to-leading positions in a variety of other IT platform categories such as storage and PCs.  About 25 percent of NEC's sales comes from outside Japan and about 22 percent of those are in North America.

Organizationally, NEC is relatively decentralized with business units that it describes as "basically independent." This is fairly typical of large Japanese firms, which are largely made up of a wide variety of subsidiary companies--234 in the case of NEC. However, most research and development happens at the corporate level. Furthermore, the company is driving an initiative it calls "One NEC" that's intended to encourage greater cooperation and cross-leverage among its subsidiaries and business units. This represents a legitimate change in overall approach even if it doesn't reach the level of a formal organizational alignment around global strategy. My take is that this more measured take on global business--relative to, say, Fujitsu--reflects the relatively higher concentration of NEC's business in Japan and a corresponding need to move carefully in order to not risk disrupting that existing revenue and market share base.

We're also seeing significant changes afoot within NEC Corporation of America (NECAM), starting with the organization itself. NECAM was established in 2006 from the combined operations of NEC America, NEC Solutions America, and NEC USA. Focusing specifically on the NECAM IT Platforms Group (i.e., the enterprise computing side), major objectives include:

• A shift from what has largely been an OEM business to a substantially broader branded product line. In part for this reason, building awareness of the NEC brand in North America is a priority for NECAM.
• Build reseller channel; Sysix is a recent major win. NEC's HYDRAstor and many of its enterprise servers will continue to be sold directly but other products (general purpose servers, fault tolerant servers, and thin client solutions) will become largely channel plays--either system integrators/value added resellers or 2-tier distribution.
• Focus on verticals with integrated solutions that leverage other NEC products and strengths both within and without IT. This includes areas such as physical security and biometrics--including Law Enforcement Automated Fingerprint Systems (AFIS)--as well as the telephony systems that have been a historic NEC focus.

Having been following NEC as an analyst for about eight years, the changes taking place within NEC feel like a systematic up-leveling of NEC's U.S. operations--which have often seemed somewhat ad hoc in the past.  There's certainly lots of work left to do, but a start has been made.

I've been attending Fujitsu's North American analyst day that it's been holding annually in Boston for quite a while. This year was no exception. Fujitsu executives spent the day of October 23 in the Intercontinental on Boston's rapidly morphing waterfront providing an update on company products, services, and, especially, strategy.

If I had to sum up my overall takeaway from most past meetings, it would probably be something along the lines of "incremental advance" or "slow and steady." In 2006, I even wrote that:

...strikingly little has changed with Fujitsu (specifically Fujitsu Computer Systems of North America) over the past year. We noted after last year's conference that "slow and steady" was their meme. To be sure, that implies progress, if not enough of it. But, with a few tweaks here and there, I could cut and paste the report we published after that conference, change a few customer names and other specific details, and reuse it today.

This year felt different. The change hasn't so far been much reflected in products or revenues, but in Fujitsu's organization and its strategy. The net is that Fujitsu appears to be more serious about being an integrated worldwide business--rather than a Japanese company that opportunistically also sells elsewhere--than I've seen them to date.

Fujitsu Limited was founded in 1935 as Fuji Telecommunications Equipment Manufacturing. Today it has about 500 subsidiaries around the world, including Fujitsu Computer Systems, the Sunnyvale, Calif.-based operation that sells enterprise hardware, software, and services in North America. Fujitsu Limited had 2007 revenues of about $53 billion; 63.9 percent came from Japan and 9.8 percent came from the Americas.

In history, products, and structure, Fujitsu has much in common with NEC--another large Japanese electronics supplier whose sales efforts elsewhere in the world have been patchy. In the case of both companies, it's often seemed as if they aligned themselves almost exclusively to the needs of the Japanese--or at least the Asia-Pacific (APAC) market and left the rest of their worldwide operations to do the best they could with that same set of products. It's often even been unclear whether certain products could actually be purchased and supported in a particular geography.

However, earlier this year, Fujitsu significantly reorganized its operations. Such reorganizations aren't especially uncommon. The worldwide web of subsidiaries that make up a company like Fujitsu always seem to be getting rearranged. But this latest reorganization seems more structural.

The four major regions--Americas, EMEA, China, and APAC--now report into a Global Business Group headed by Richard Christou (who originally joined Fujitsu when it purchased U.K.-based computer maker ICL). The regions will still "act locally" (to use Christou's term) but the idea is that there will now be a global strategy framework and a consistent set of practices and products whereas previously each region implemented its own strategy.

As is the case with any organization, sales volumes will doubtless continue to drive resources allocations and product decisions. In the case of Fujitsu, that means the needs of APAC will weigh heavily when trade-offs have to be made. However, the fact that Fujitsu is now at least organized around and talking in global terms has to count as a big change.

Earlier this week, Sun Microsystems launched a family of new servers based on the SPARC64 VII processor. In contrast to Sun's "CMT" (Chip Multithreading) UltraSPARC T1 and T2 designs that deliver aggregate performance using a large number of threads, SPARC64 takes a more conventional approach that is more rooted in parallelism and performance at the level of a single thread. This design is more attuned with the performance requirements of typical enterprise back-end applications and databases, whereas CMT has more of a network-facing orientation.

SPARC64 comes from Sun's partner Fujitsu, which also designs and builds the midrange and high-end servers that use the chip; these systems went by the "APL" codename while they were under development. Fujitsu and Sun jointly sell these servers--as well as the CMT "Niagara' boxes for which Sun does the processor and server development.

The new processor and servers are solid upgrades. Although not as multi-threaded as Niagara, the SPARC64 VII bumps the number of cores per chip to four, and adds the ability to run two threads on each of those cores--a technique that helps mask delays associated with waiting for data to arrive from memory. Frequency is also up from the prior generation to 2.4 GHz and 2.52 GHz.

Sun pegs the performance boost over the prior generation at up to about 80 percent for commercial applications, and up to 2x on apps that are floating point-intensive. That's a nice increment, considering that upgrades from the SPARC64 VI servers require only CPU board upgrades. While I find that vendors often overplay the issues associated with competitors' "forklift" hardware upgrades and other supposed gotchas, there's no doubt that less is more when it comes to making infrastructure changes.

Overall, there's little to fault in this announcement from a product perspective. It's a solid, nondisruptive bump to a product line that--although Sun doesn't break out numbers--must contribute a substantial chunk of its server revenue.

My critique instead relates to how Sun (again) seemed almost bored by this announcement. Yes, there was a press release--it wasn't exactly a stealth launch--but there was certainly none of the mass marketing air cover that Sun (for better or worse) is wont to darken the skies with when it comes to something that it's genuinely excited about. No blog postings from its pony-tailed Blogger-in-Chief. No glitzy roll-out.

Don't get me wrong, many of the things that get Sun's corporate blood flowing such as open storage, OpenSolaris, Project BlackBox, ZFS and solid state disk, and Niagara are genuinely exciting. But many are also speculative. It would behoove Sun to at least make the old college try to display some comparable enthusiasm about products that are proven and bringing in real revenues.