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Where did Sun go wrong?

Elizabeth Montalbano | April 13, 2009
One of Silicon Valley's biggest innovators faces a tough road alone after walking away from a deal with IBM

Sun's board of directors named Jonathan Schwartz chief executive officer. Scott McNealy will continue as Sun chairman and takes on the additional title of chairman of Sun Federal Inc., where he will focus on Sun's key U.S. government customers. 

NEW YORK, 10 APRIL 2009 - Just before the dot-com boom that spawned the meteoric rise of Sun Microsystems came careening to a halt, then-CEO Scott McNealy and President Ed Zander held a meeting where they discussed the future of their company.

At the time, Sun owed the fast-growing sales of its server hardware and position as an industry darling to the dot-com economy, "an unnatural period when they were considered a 'you must have this vendor' company," said Illuminata analyst Jonathan Eunice, recalling the meeting he attended in 2001.

Even as the boom that had allowed their business to flourish was about to end, the two executives did not appear to see anything amiss, Eunice said.

"It was a moment when everyone in the room knew that things weren't going to continue as good as they had been," he said. "But they were on stage saying, 'We don't see anything falling down.'" It was a "moment of blindness" for Sun, he said, one that came at a turning point when the company should have been making tough business decisions to ensure its longevity.

The years since that meeting in 2001 have not been kind to Sun. The company that had built up its business selling powerful Unix servers faced a dual threat in the form of x86 processors, which would spawn cheap but powerful servers that undermined its Sparc-based offerings, and the Linux OS, which would be embraced by IBM and Oracle and emerge as a potent, low-cost alternative to Sun's Solaris.

Those events were beyond Sun's control, of course, but while rivals like Hewlett-Packard and IBM reinforced their businesses by embracing the new technologies and building up their professional service arms, Sun's reaction was to hunker down. What followed, analysts and even some former Sun executives say, was a series of missteps that have left the company where it is today -- it has lost $1.9 billion over the last two quarters, with revenue down 9 percent to $6.2 billion. Indeed, the company has had difficulty sustaining profitability since the dot-com bust. Moreover, negotiations to be acquired by IBM have apparently broken down, at least for the moment, leaving Sun in a weak and exposed position.

It has been an ignominious and somewhat mystifying downfall for a company that, for all its missteps, has been one of the greatest innovators in Silicon Valley history. From Java to Jini to utility computing and its slogan "the network is the computer," Sun has often shown an uncanny vision for identifying industry trends before they happened. In many instances it was, quite literally, ahead of its time.

 

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