Server-making rivals come and go, but
keeps right on shining.
With a flurry of announcements over the past two weeks,
have taken on the daunting task of unseating Sun Microsystems from its enviable position atop the Unix market.
But observers aren't expecting any major realignment in the server universe anytime soon, thanks largely to the company's salesmanship and unwavering focus. That could help support Sun's shares, which have lost more than a quarter of their value since the
began slumping in March.
Sun's concentration on proprietary, non-
-based Unix servers has helped it achieve a dominant position in that space, where fat margins and a boom in capital spending on Web infrastructure have resulted in some extremely impressive sales and earnings momentum. That success hasn't been lost on the market: Though Sun has gotten hit hard lately, it's still up an amazing 177% over the last 12 months and now trades at some 84 times trailing earnings.
Happily for Sun, the latest battles in the ongoing Unix wars may not be decided purely by technological innovation. The company has been slow to bring its next-generation
high-end servers to market, and that has Compaq licking its chops, having already unveiled its powerful
server, which it expects to generate about $1 billion in sales this year. Tests have shown the 32-processor version of Wildfire, which Compaq will ship later this year, to be very competitive with Sun's
server, which runs 64 processors. And IBM has attacked the midrange market with a lighter version of its high-end
server, which runs on Big Blue's proprietary copper-chip technology.
Sun Still Shines
"It's not the best technology that always wins, says David Bailey, analyst at
Gerard Klauer Mattison
, which hasn't done any underwriting for the company. "I don't think anyone's saying that Sun has the fastest processor now. But it has the best solution."
Lifetime of Devotion
If that last claim is true, it's because of Sun's wholehearted devotion to Unix and its own Solaris operating system. According to Bailey, that focus allows Sun to develop new products more cheaply than its competitors. It also makes those products much easier to market. "IBM may have three or four offerings at the same performance level, and it's hard for the salesforce to articulate what the customer should do," he notes.
analyst Jeff Hewitt agrees that the proprietary nature of Sun's products will help its salesforce maintain the company's momentum, and keep competitors from wooing away current customers: "They can say, we have the operating system, the chips, the platforms from motherboards to chassis, and you know what you're getting into when you come to us. We're not going to sell you Intel and Windows today, and Intel and Linux tomorrow, and an Alpha chip-set and some other kind of platform the next day."
The biggest threats to Sun could come from outside the Unix market. "Unix is probably big enough to handle a lot more players than just Sun," says George Elling, analyst at
, which rates Sun a buy and has no underwriting relationship with the company. "More of a challenge will come in whether Windows NT 2000 begins to impact the low-end work-server market. And issues such as Linux -- will that have any impact on Sun?"
Sun already lags behind companies like Compaq,
and IBM in the overall server market, which includes servers supporting the Windows NT operating system. Figures from
International Data Corp.
show NT holding about 38% of the operating-system market in 1999.
Linux, meanwhile, has quickly taken about a quarter of the server OS market, according to IDC. And though Sun says it will support Linux, it currently offers no Linux product.
That could leave Sun vulnerable on the low end to attacks by upstarts like
. "We're gonna do the same thing to them that many companies have done in this market," vows CEO Larry Augustin. "We're going to come in at their soft underbelly. We can beat Sun significantly at price performance in the entry- to midrange-server level, and that's what these dot-coms are built on."
True to form, Sun hasn't been betraying much nervousness. Toward the end of Sun's conference call last month, someone asked Scott McNealy, the company's cocksure CEO, whether he was worried about the pending introduction of Wildfire. McNealy laughed. He hadn't heard of the product, he said, and judging by the looks on their faces, almost no one else in the room had, either.
"That's the way they approach things over there," says Hewitt. "They're a little arrogant, and they need to watch that or they'll get blindsided in this marketplace."