Sun Tries a Software Makeover

Insanity, someone once said, is doing the same thing over and over again and expecting a different result.

Scott McNealy, the brash, combative CEO of Sun Microsystems (SUNW Quote), has been called a lot of names, but crazy isn't one of them. And after years of doing the same thing with increasingly disappointing results -- his company has reported nine straight quarters of year-over-year revenue declines -- McNealy is doing something different.

Sun, long thought of as a seller of high-end servers, is positioning itself as the company that will finally make enterprise computing rational, dependable and affordable. Instead of buying dozens of "moving parts," customers will be able to turn to Sun for hardware and a bargain-priced software bundle that will make a business network run, the company says.

Many analysts give that vision high marks -- in theory.

But convincing customers to bet their business on Sun software is going to be very difficult. "Leadership in the software infrastructure market is essential for the success of a 'systems' company, yet Sun is still not perceived as being credible by many of our clients," says Nick Gall, senior vice president of the META Group, an IT consultancy.

Sun has sold software for years, of course. And 50% of the company's $1.84 billion R&D budget is devoted to it, says John Fowler, CTO of the Santa Clara-based company's software group.

But in the last two years, Sun's software revenue (which the company doesn't break out) has declined by an estimated 25%, to $800 million, according to Gartner analyst Joanne Correia. And the last time Sun reported revenue for middleware -- the fiscal year ended June 2002 -- it lost $314 million on sales of $254 million via its former iPlanet subsidiary. (Total revenue that year was $12.5 billion.)