In depth: Sun looks for turn-around on Wall Street

On Tuesday, executives from Sun will head to Wall Street, hoping to convince customers and partners in the financial industry that the company continues to be viable in the industry that Sun President and COO Jonathan Scwhartz affectionately refers to as “the swamp from which we spawned.” Sun is expected to make a number of new product and partnership announcements during an event for customers, press and analysts at the W Hotel in New York City on Tuesday.

Sun first gained a foothold in Wall Street in the mid-1980s, as a vendor of workstations for securities traders who wanted a multitasking operating system that could display financial data on more than one monitor at a time. Before long, however, the Santa Clara, Calif., company also found a role in financial company’s data centers, powering databases, transaction processing and the custom data mining applications that many financial firms consider key to their competitive advantage.

With the economic downturn of 2000, Sun’s cozy relationship with the financial industry cooled, and the company found itself on the losing end of a price performance war against Linux on Intel-based systems.

“We didn’t have the strategy that the Wall Street customers (wanted),” said Stuart Wells, the head of Sun’s Capital Markets Group, in a July interview .

“Between 2000 and 2002, many of Wall Street’s big names just fundamentally cut their spending,” Wells said. “Red Hat was more popular because what the customers wanted was low-cost computing,” he said.

Sun executives admit that the company was blindsided by the industry’s move to commodity computing and say they have taken steps over the last year to adapt to the change. In November 2003, Sun announced plans to build products based on Advanced Micro Devices Inc.’s Opteron processor, which is compatible with Intel’s ubiquitous x86 chips. Three months later, Sun acquired Kealia, a PC server company led by Sun co-founder Andy Bechtolsheim.

Bechtolsheim, who invented the Stanford University Network workstation that became the basis of Sun’s first products, is presently at work on a new generation of systems based on commodity PC components. Sun hopes those systems will establish its preeminence as a commodity system provider.

After rethinking a January 2002 decision to put Solaris x86 on hold, Sun has also made a number of moves to present the product as a viable alternative to Linux. It certified Solaris to run on hardware from its competitors, including Dell, IBM and HP. On Tuesday Sun is expected to announce an increase in the number of financial applications Solaris x86 now supports.

“The financial services community used to be one of Sun’s strong points, and that position has been under attack for a while,” said Dan Kusnetzky, an analyst with industry research firm IDC. “Sun has been trying to come up with a way to address that challenge. One way is to increasingly support Intel-compatible architectures, including Opteron,” he said.

Sun will have its work cut out to convince the financial industry that it can be a low-cost server provider, said Dan Stivers, CEO with 7ticks IT Consulting, a Chicago provider of IT consulting services to the financial industry. “Sun basically gets sold for legacy systems,” he said. “Any firm of substance out there that’s pushing the edge and that’s really focused on next-generation stuff is not pushing Sun.”

While Sun is saying that it plans to release Solaris under an open-source license by year’s end, Stivers says that until the details of this plan are revealed, customers will be wary of Solaris on x86, for fear that it will gradually lock them into Sun’s hardware platform.

IDC’s Kusnetzky agrees that Solaris on x86 remains a hard sell for Sun. “Solaris has a number of very good points to it, but the challenge is that Solaris (x86) isn’t Solaris,” he said. “When you talk to Sun, all roads lead to Sparc and Solaris. It doesn’t matter what you talk about , the conversation always ends with Sparc and Solaris.”

Stivers was even more blunt on the matter. “The financial industry as a whole is not buying the fact that there is a better cost return by paying fees to Microsoft or Sun,” he said.

But cost is not the only factor financial firms must consider. The Philadelphia Stock Exchange Inc., already an UltraSparc and Solaris shop, recently chose Solaris on the Sun Fire 4800 and Sun Fire 6800 servers in order to get a new electronic options trading system, called PHLX XL, up and running.

“We already had an installed base of Sparc and Solaris, so the thing that would enable us to get to market fastest was to build upon what we had,” said Bill Morgan, executive vice president and CIO of the exchange. His organization is in the process of evaluating Linux and Solaris x86 for future projects, but when it came to choosing a platform for PHLX XL, the company did not even consider PC systems.

The enhancements to Sun’s hardware and Solaris 10 operating system are going to be critical in enabling PHLX XL to scale from the 60,000 messages per second it handles today to the 120,000 messages per second it is expected to handle a year from now, Morgan said. With a rebuilt TCP/IP stack and improved multithreading support, the Philadelphia Stock Exchange expects to lower the amount of new hardware it must purchase in order to scale up its trading system. “You can in effect scale within the same machine as opposed to adding servers,” Morgan said.

Whether companies like the Philadelphia Stock Exchange will accept Sun and Solaris as a viable alternative to Linux remains to be seen, but for the moment, at least, Sun has some serious catching up to do.

Preliminary estimates show that Unix, including Solaris for both the UltraSparc and x86 platforms, accounted for only 10% of worldwide server operating system shipments in 2003, IDC’s Kusnetzky said. Linux made up 24% of that market, while Windows accounted for 58%.

“If you look at the data, it’s pretty clear that as Linux grows, Unix is declining,” Kusnetzky said. Sun will have to turn some skeptical heads on Tuesday in order to reverse that trend and prove that there is momentum behind Solaris.

Intransigence has caught up with Sun, said 7tick’s Stivers. “At one point they were a phenomenally great company that refused to change. Now they’re paying the price.”