Thursday, December 22, 2005

 

Sun's Strategy and Future

While researching some references for my previous blog on Sun's strategy, or lack of, I came across this great BusinessWeek article on Sun and Scott McNealy -
Sun: A CEO's Last Stand.
As I read through the article, I found that they were making many of the same points that I believed about Sun's off target strategy and the potentially disastrous consequences of them for Sun's future. And these points were backed up by interviews with many previous Sun executives.


The main points I fully agreed with were:


Well worth a read.

 

Sun's Strategy - What Strategy?


Long ago, when I worked for other computer vendors that competed against Sun,
we always argued Sun was small, had weak technology and would struggle in the long term.
We said they had no long term strategy that made any sense or would pay off for them.
In spite of this, Sun continued to grow while the other computer vendors did not.
So I eventually conceded that Sun probably did have a strategy
and that by working to this they were successful and would continue to grow.
This was one of the factors that influenced me to consider Sun when I was looking for
a job change in 1999. I joined Sun hoping to eventually understand this strategy better,
and to be there when it succeeded by following through on this strategy.


Well, I couldn't have been more wrong.
All the perception I got from 6 years of working for Sun
is that it has no apparent strategy at all, and that it just moves from one knee jerk
reaction to another, as it tries to react to things it has no control over.


Before I worked for Sun they were just another computer company amongst
all of the many others that existed at the time. So I did not take
any special notice of them. I only heard the headlines when big
things happened. And sometimes, these headlines were good news for Sun.
Such as the AT&T deal for co-developing UNIX System V, and Oracle using
Sun workstations for development, and Java taking off across the Web,
and the success of the high end E10000 system, and so on.


When I joined Sun I started to take a lot more notice about what Sun
was doing, and more of the detail about its complete product range
and the public press announcements it made.


Well, I never got access to any special information on Sun's strategy
that we weren't already sharing with the public, or that industry magazines
and web sites weren't already guessing at.
I was not in engineering, product development, marketing or headquarters.
So I was not privy to any special information on what Sun was up to.
When I head about it, Sun was just about to tell the
rest of the world a moment later.


As time went on rather then seeing the detail emerging of the strategy
that Sun was executing against, instead I saw a series of knee jerk
reactions from a bunch of people that clearly did not know what they
were doing. Why else would Sun have done any of the following?



So does Sun have a strategy? Maybe and maybe not.
If you judge it by the way it acts, then no, Sun does not have any strategy at all.
What Sun does appear to be doing is a series of random, unconnected decisions and actions,
many of which it either undoes and goes back on or does the complete opposite of
only a short period of time later.


The conclusion I came to after seeing all of the actions of Sun over
the past 6 years was that it does not have a strategy, and is really
in 'headless chicken' mode. It moves from one reactive action to another,
as it tries to deal with its declining revenue and market share.
And buys up companies to try and shore up its product lines and cover over gaps.
And try and somehow expand into new product segments to look like it
is growing and offering something new.
And hope that somewhere, one of these random, disparate actions
actually works, succeeds and provides some payback.
But so far none of them have, and nothing actually gets any better.
And now, if it can't make any product or technology work,
just open source it, give it away to the market,
and forget about it.


So, with no real strategy, and no clear direction, Sun continues to stagnate,
not growing and reporting flat revenues, if not actually declining in real terms.
And no sign of when any of this is going to end.


Dilbert cartoon about company strategies

Wednesday, December 07, 2005

 

Niagara - Saving Sun or Sinking It?


So Sun has finally announced servers based on the Niagara multi-threaded, multi-core CPU. Officially it is the
UltraSPARC T1 processor,
in the
T1000 and
T2000 servers.


At one level I think the whole Niagara/T1 chip multi-threaded (CMT) stuff that Sun has done is great, if not phenomenal. They have managed to design and build a processor that delivers more throughput in total, while not consuming any more resources to achieve it.
And they have done it in a way that deals with the memory latency that slows down the performance of normal single threaded processors.
The T1 should definitely deliver more overall performance per core than a single threaded
processor, and with 8 simpler cores packed together on one physical chip sharing related
infrastructure, it will deliver phenomenal amounts of processing power at very low cost.
And Sun should sell a lot of T1 based systems as a result.


But that leads to my other reaction - that Niagara/T1 could spell a major decline in Sun's revenues.
Why?
Because it is so cheap and yet has the equivalent power of
an E10000 system with 32 UltraSPARC-II processors in it.
So overnight a lot (but not all) of Sun's medium to high end server revenue,
based on its UltraSPARC-III and IV processors will disappear,
and will be replaced by sales of the T1000 and T2000.


Think about it. An 8 core T1 can have 32 executing threads.
Each core is equivalent to about an UltraSPARC-III (US-III) in terms of its technology and speed.
Even if a T1 does not achieve 32 times a single US-III CPU, it should achieve at least 16 times in terms of real throughput.
So EVERY 16 CPU US-III system out there could be replaced by a T1 based system!
That would have been a Sun Fire 6800 system when the US-III was first launched, costing several hundred thousand dollars.
And now it can be replaced by something costing between ten and thirty thousand dollars.
That is a major shift in the scales of revenues!


Furthermore, 16 US-III is equivalent to 8 US-IV dual core processors.
So every system from the V890 downwards can each be replaced by a single T1 based system instead. And most E2900 system sales too, as this can only hold up to 12 US-IV processors.
So, all of the revenue streams from all of the V890, V490, V440, V240 and V210 systems will just dry up. And very quickly.


The prices for these existing systems range from $118,995 for a 8 US-IV CPU, 32 GB V890, through
$80,995 for a 4 US-IV CPU, 32 GB V490,
and $40,995 for a 4 US-IIIi CPU, 32 GB V440,
to below $10,000 for the V240 and V210.


And the T1000 costs $11,995 for an 8 core, 16 GB configuration, and the T2000 costs
$26,995 for an 8 core, 32 GB configuration.


Do the math. Systems currently selling for between $50,000 and $100,000 will all be replaced by systems selling for between $12,000 and $27,000. The revenue Sun gets for this class of system will drop to roughly a quarter of its current revenue.


This means that at the high end, in practical terms, Sun will be left with the E6900, E20K and E25K only. And suddenly, compared to the T1 based systems, they look VERY expensive for the amount of processing power they deliver.


And if you are using application software that can be partitioned over a cluster, such as Oracle RAC, then you could replace an E6900 or E20K with a cluster of 4 * T2000 servers.
And Sun is saying that
Oracle will recognise a T1 processor as 2 CPUs for licensing its software. [Scroll down to the paragraph starting "Continuing to build on their longstanding collaboration"]


Let's say that 16 US-IV CPUs today equals 32 or more of the original US-III CPUs.
And one 8 core T1 processor = 32 threads = 16 US-IIIs at worst performance.
Then 4 * T1 = 64 US-IIIs presuming linear scaling when clustered.
But, given that Oracle RAC will not scale linearily, we might only get 3 times
the throughput of one T2000 system.
The net result is that the cluster of 4 * T2000 servers gives me around 48 US-IIIs worth of processing power, which is more than a server with 16 US-IV CPUs in it.


So a 16 US-IV CPU 64 GB E20K at
$905,142
could be replaced by 4 * T2000 of 8 core, 32 Gb each at 4 *
$26,995 = $107,980.
This represents a saving of $797,162, or 88% of the price of the E20K!


I imagine that Sun's figures for Q1 of calendar year 2006 will not look very good.
Great server volumes, but lousy revenues, and therefore lousy profit (if any).
Again, do the maths yourself. As a consumer, the T1 based T1000 and T2000 are great products.
Tremendous amounts of processing power for very little money,
and fully binary compatible for running Solaris 10 and all of the ISV applications already out there.
As a shareholder, just how does Sun expect to grow its revenue, and as a result
cover its costs and so make a profit?
I don't know. And I don't believe Scott or Jonathan know either.
Otherwise they would have fixed the revenue / profit problem a long time ago,
and Sun wouldn't be in the mess it is in now.


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