Does Linux’s rise presage Sun’s fall?

God save the queen, but who is going to save Sun Microsystems? It certainly won’t be Scott McNealy if you believe the analysts who are betting the company will struggle to survive another five years.

Meta Group analyst Nick Gall is scathing in a recent report claiming, “The only thing that will save Sun from becoming the next Digital Equipment Corp is a near-death experience and a CEO from the outside.”

Even putting aside the cheap polemic of an analyst report there are plenty of reasons why the sun could be setting for McNealy.

Declining sales in the enterprise Unix space and intense competition on every front from the likes of IBM, Hewlett-Packard, Dell, Microsoft, BEA and Oracle descry stormy conditions ahead.

A quick glance at the April edition of CIO Magazine and the headlines read like a death notice for Sun with lines like, “Three Strikes on Unix” and “Your Open Source Plan for 2003”.

The magazine merrily profiles a CIO who saved a motza by replacing 60 Sun boxes with Intel servers. Sure the Intel boxes are less powerful than their Unix counterparts, but at $US4000 a pop he just brought more of them.

Alas, here we have the dilemma facing our favourite systems company. No wonder Meta reckons the only way the company can gain a competitive edge is by moving away from Sparc/Solaris and betting its future on Intel, Linux and Web services.

“Sun has failed to make any money out of software infrastructure and is taking a wrong approach to defending its hardware margin,” according to the report which is critical of Sun’s integrated systems concept “Project Orion” and N1 initiative. Sun’s goal is to reduce integration and operating costs so there is more money for hardware.

Meta analyst Philip Dawson says: “Frankly, this highly integrated and optimised but insular approach is reminiscent of the IBM AS/400 (now iSeries) platform.” But hey, there are plenty of Solaris aficionados out there who are willing to share their devotion, but for how long are they willing to share their cash? That is, indeed, the billion-dollar question.

As a former Ducati owner I wouldn’t dare consider a Suzuki, but even the geek intelligentsia have to confront economic realities. Enterprise IT has become highly commoditised with even one Sun fan and CTO forced to agree (but only after a deep sigh of troubled resignation). Yes, he said, dark clouds are forming to overshadow the fortunes of a much-loved company, but McNealy is fighting a religious war. However, the CTO added, it is no longer an anti-Microsoft battle because the new religion is Linux. Take a look at Sun’s fall in revenues over the past two years and it is obvious the marketplace isn’t merciful and it certainly doesn’t reward religious zeal.

Quarterly revenue ending March 30, 2003 saw a 10.2 per cent drop in earnings over the same period in 2002. Defending revenues in a twisted display of bravado last week McNealy told a US Computerworld journalist that, “We are doing just fine . . . Sun has a cash position above everyone who is a convicted monopolist.”

So what will return Sun to its former greatness: a new product direction or a merger? And what will become of McNealy? Show off your forecasting abilities and let me know if you think sunny weather conditions will prevail at sandra_rossi@idg.com.au

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