McNealy sings a low-cost tune

After earning a fortune selling big, costly servers in the dot-com heyday, Sun is singing a different tune: Buy our hardware and we’ll save you money.

After earning a fortune selling big, costly servers in the dot-com heyday, Sun is singing a different tune: Buy our hardware and we’ll save you money.

With the economy in a slump, four things are on the minds of Sun’s customers: “Cost, cost, cost and cost,” said Scott McNealy, Sun’s chairman and CEO, at a press event to launch new products Tuesday.

He argued that Sun can do low-cost hardware as well as the next company, be it low-end Unix servers based on Sun’s Sparc chips or Intel-based servers running Solaris or Linux. In both cases Sun offers better value than its rivals because it throws in its operating system and middleware for free, McNealy argued.

Other executives harped on a similar theme. They plugged a new offering for consolidating storage systems onto a single, large machine. And Mark Canepa, a Sun executive vice president, said two new low-end UltraSparc IIIi servers launched here are “comparable to a PC kind of cost structure.”

Sun’s claim that it can save customers money by bundling software is only partly true, one analyst said. If customers want the whole stack of Sun software — including its operating system, middleware and management tools — then they may indeed save some money, said David Freund, an analyst with Illuminata Inc.

“If you add all the numbers up, it looks really compelling. The trouble is, you never would add all the numbers up. You’d never buy a Dell server with all those components on it, so it’s somewhat disingenuous when you look at the actual value of any one server at a time,” he said.

Customers who buy numerous Sun servers may, in aggregate, save some money even if they want the whole Sun software package on only some of those servers, Freund added.

McNealy brushed off concerns that Intel and Linux are threats, pledging to expand Sun’s line of servers running Intel-type processors and to support the popular Linux distributions for its customers. Sun had originally planned to sell its own version of Linux but backed off the idea last month.

Another analyst said Sun had no choice but to start selling Intel-based servers, since some of its customers had been looking in that direction.

“It was pragmatic,” said Jean Bozman, an analyst at IDC. Sun would prefer to sell Sparc Solaris systems, she noted, from which it makes higher profits.

It remains to be seen whether Sun is committed to x86 and Linux or whether it will turn tail should its more profitable Unix business pick up steam again, she said. “I think you have to look at the volumes” to see how serious Sun is, she said.

In the meantime, while its midrange Unix business has performed poorly of late, Sun’s low-end Unix business has been doing well, she said. In that category, which IDC defines at systems priced under $100,000, both Sun and IBM increased their market share and unit volumes in the fourth quarter of 2002, Bozman said, citing preliminary figures due out soon from IDC.

She attributed Sun’s success there to its broad product line and its ability to tap its installed customer base.

Although Sun is using Intel’s 32-bit processors, McNealy had no time for Itanium, Intel’s 64-bit chip which some analysts view as a big threat to his company. He argued that the architecture is clumsy and that there’s little support for Itanium in the industry, and said Sun’s market share is too strong for Intel to overcome.

“I wouldn’t say we dominate, because that might be illegal, but we have ‘interesting’ market share in the 64-bit space,” he said.

McNealy was in town to pitch a raft of new products including two low-end Unix servers, a new midrange storage line and the N1 Data Platform, a product for managing groups of storage systems in a datacenter more efficiently.

Although Sun is offering professional services to help customers implement N1, it doesn’t plan to beef up its services arm with an acquisition, McNealy said.

“We’re not going to do a (PricewaterhouseCoopers) or try to compete with EDS, we’re going to go out there and partner. When I leave here I’m off to our iForce show in Orlando, and my message is going to be that we’re going to partner like crazy, so we don’t see any major acquisitions on the horizon,” he said.

Sun may continue to make small, “opportunistic” acquisitions to beef up N1 and other product lines, as it did with its recent Terraspring and Pirus Networks acquisitions.

Asked how the quarter is shaping up for Sun, McNealy declined to comment, pointing only to the uncertain environment affecting all businesses.

“I could get really negative on you. We’ve got SARS, we’ve got a war, we’re post-bubble, the telecoms industry is struggling, financial services is struggling, media is struggling, and clearly there’s a lot of uncertainty.

“We’re in that situation where people aren’t sure what’s going to happen next. Is the world going to be made up of millions of blades? Are big servers dead? Is Unix dead — yet again? Is Intel going to kill Sun? There are all these things that keep popping up, it’s like they’re coming out of remission and we’re going to have to face them. Now you go figure out what that means for the quarter.”