Oct. 18, 2000, might go unnoticed in the long history of Sun Microsystems, but it marked a critical moment in the history of a company that celebrates its 25th anniversary this week.
On that day, an upbeat Scott McNealy spoke with analysts and unveiled his company's eye-popping first quarter earnings (US$510 million on revenue of US$5 billion -- an 88 percent increase over the same quarter in 1999). Looking forward, McNealy saw nothing but roses in Sun's future. Systems using the company's new UltraSPARC III processor had gone on sale in the preceding quarter, and McNealy predicted they'd be big hits in Sun's enterprise customer base, "offering unprecedented levels of uptime, reliability and quality."
It wasn't to be. Even as he talked up Sun's future that day, the company he helped found 18 years earlier was slipping, unnoticed, into a challenging new era that would shake it to its core, shake him from his perch as CEO, and challenge the very assumptions and strategies that had turned Sun into a Silicon Valley legend and Wall Street darling.
Over the next 12 months, as the air spilled out of a dotcom bubble that had fueled so much of Sun's growth, the company's stock would lose 80 percent of its value. Exactly one year later, McNealy would face the same analysts to announce first quarter revenues that were 43 percent lower than in 2000 and a net loss of US$158 million.
And the news from Sun wouldn't improve for a long, long time as the company struggled in the years that followed to find a recipe for success while sticking doggedly to homegrown technologies like SPARC and its Solaris operating system. During one dark stretch, the company recorded 10 consecutive quarterly losses -- a blow that would fell many, lesser firms.
Instead, Sun said last week that it is on track for a second consecutive profitable quarter after the company posted net income of US$126 million on revenues of US$3.566 billion for the quarter ending Dec. 31, 2006, ending a streak of five consecutive money-losing quarters.
"They're in better shape recently than they were for much of last year," said Rob Enderle, principal analyst at Enderle Group. The company had been on a slow spiral downward for about five years but has begun to right the ship by focusing on its hardware line, open-sourcing Java and Solaris, and regaining ground in the all-important server market that it had lost to Dell, IBM, and HP more than five years ago, Enderle said.
The return to profitability is sweet victory for a company that began as a brash competitor in the technical workstation space, survived the crucible of the dotcom collapse, and now is poised to regain its status as an innovative technology giant just as it celebrates its 25th anniversary this month.
Founded in late-February 1982 by hardware designer Andreas Bechtolsheim along with entrepreneurs Scott McNealy and Vinod Khosla and software guru Bill Joy, Sun sharpened its teeth in the early days by besting bigger, more established firms like Apollo Computer (later part of HP) in the lucrative market for enterprise workstations.
An engineer's engineering company to the core, Sun was an early backer of innovative technologies like NFS (Network File System), Java, which started as an internal project by early Sun employee James Gosling in 1991, and open source. That openness to new technologies, coupled with a scrappy corporate culture under hockey enthusiast CEO McNealy, helped Sun thrive throughout the 1990s as a foe of companies like IBM, Microsoft, and HP, even as the advent of personal computers running Intel processors and Microsoft's Windows operating system ate into the enterprise workstation market.
The rise of Windows on Intel systems, or "Wintel," was a one-two punch for Sun in the enterprise. At marquee customers like GM, which has been using Sun systems for about 10 to 15 years, Sun workstations long ago gave way to Wintel PCs, said CTO Fred Killeen. "Historically, we would use Sun workstations, less now. The big part of [the switch to Wintel] is the end users now have a common platform that supports all their desktop applications as well as the CAD and CAE applications," Killeen said.
Sun responded to the threat with characteristic pluck: disparaging Microsoft and looking to counter it with technologies like Java and OpenOffice. While those efforts did succeed in taking Microsoft down a notch, they did not do much for Sun, Enderle said.
But as the 1990s boom revved up to a spectacular collapse at the turn of the millennium, the combative attitude that helped Sun face down bigger rivals blinded it to a changing business environment, allowing competitors to build leads in such areas as Web services standardization and push non-Sun technologies like Intel chips and the Windows OS.