By Network World Staff
Network World, 12/25/00

The Internet has been extraordinarily good to Sun. Its servers, outfitted with its scalable processor architecture (SPARC) microprocessors and Solaris operating system, are powering many of the biggest Internet commerce sites and service provider networks. Numerous enterprise users have selected Java as the basis for developing server-based Internet commerce applications.

The numbers tell part of the story. Revenue for fiscal year 2000, which ended June 30, was $15.7 billion, up 34% over fiscal 1999 revenue of $11.7 billion. Sun says it expects revenue growth to be in the mid-30s percentile for the current fiscal year. But revenue for the quarter ending Sept. 30 ran nearly double that, up 60% from a year ago. That easily beat analysts' expectations yet again. Brokerage house A.G. Edwards had expected a 44% growth rate.

From a product perspective, Sun is on a roll. In September, it released an enhanced version of Solaris 8 and unveiled the first low-end servers using the enhanced operating system on the long-delayed, powerful SPARC III processor. In 2001, Sun will be rolling out high-end SPARC III servers aimed at big business-to-business e-commerce sites and service providers.

Sun is also pushing Java into the handheld device space, with an aim of turning these devices into programmable computers. On Oct. 30, the Third Generation Partnership Project, which is defining the specification for wireless nets, selected the Java 2 Micro Edition (J2ME) specification as the basis for wireless handset applications. Companies such as Motorola, Nokia, NTT DoCoMo, Sprint PCS, Research in Motion and other handset builders and wireless net providers are using J2ME.

On the downside, the widening shakeout in Internet commerce and dot-com companies could halt capital spending for big, pricey computer systems by key Sun customer targets: application service providers, ISPs and telephone companies.

Additionally, the open-source Linux operating system poses a threat to Sun at the low end. Sun addressed this issue in September by acquiring start-up Cobalt Networks, a vendor of Linux-based "appliance" servers aimed at large Web farms and similar sites, in a $2 billion stock-swap deal. The Cobalt servers will be a separate product line, and in the low-end market will cannibalize at least some Solaris sales. In addition, Sun will have to make the Cobalt business profitable. The company was running in the red, but was expected to hit black in early 2001, according to A.G. Edwards.

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