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Merrill Lynch Rips Sun
cosjef writes "In an open letter to Sun, an analyst for Merrill Lynch tells Sun to change or risk adding itself to the junkyard of formerly-great technology companies like DEC or Data General. The letter even recommends taking the helm away from McNealy, whose 'brash and contrarian personality have been synonymous with the company's image and success. Unfortunately, the act is getting old.' Sun's mistakes are well documented, but the biggest one is believing that what made them successful in the past would make them successful in the future."
Unfortunately, many companies then made advertising and PR their primary products, slashing R&D because they thought they'd had their budget strategies wrong all along. Sun was king of this, apparently thinking a strong brand was what sold systems, not leading edge technology. Engineering went into the toilet, and now while Sun's still good at a few things, all but their most insanely-priced hardware is nothing better than what you get with off-the-shelf commodity components.
Today, people are researching to upgrade and evolve their server networks, not just grabbing the first implementation they think they understand. And that means it takes a lot more than McNealy's I-wanna-be-Steve-Jobs song and dance to sell product.
Sun will be fine. After the exit of the two companies mentioned in the story, they are the 64 bit and high end market provider now.
//Netmar uses sun machines. www.netmar.com
Seriously. If you want to spend $5000, $8000, or even $75,000 on a computer, you can go to Dell. But, if you're looking to drop $1.3 million on a computer, you go to Sun.
For anyone that has used sun hardware, we know. It really can't be beat. The stuff is fast, scalable, and bulletproof. Sun OS is about as stable as they come.
~Will
sig?
Please please please leave Sun alone - after all, _they_ are running the business, therefore it's their responsability, no matter if success or failure happens.
The concerted "efforts" to "rescue" Sun, to bring it to the path of righteousness look very dubious to say the least: on one hand everybody and his sister seem to enjoy firing on this particular ambulance, on the other hand nobody seems to want to miss the feeding frenzy over some presumable defunct company. The last example was given by ESR: http://newsforge.com/article.pl?sid=03/10/02/12402 43.
Give the poor people a break!
I've been an avid investor and it is my experience that the financial firms such as MerrylLynch, PriceWaterhouseCoopers and others have their own biased stance. They are either flogging a company so that a competitor will rise in value or just are simply wrong. Furthermore, I think you're describing Merryl Lynch's business model here. Marketing is how financial industry make money, hell they can sell you paper for your dollars, they gotta be doing a great job of marketing. Who's Wall Street to talk about substance? The whole financial industry is operating on hot air. Oh wait, hot air actually has some value.
I mean... let' run through some arguments here:
1) if they are so good at analyzing the market and which company will do good / do bad, why arn't they sitting around with billions, but instead slaves away at financial institutions?
2) how many analysts spoke out at the beginning of the dot com bubble insightfully? (i.e. "this won't last?") IIRC everyone, yes including the analysts, were basically like "hey everybody what a wonderful opportunity! buy buy buy!"
3) AFAIK analyst predictions on stock / company performance has never been any more accurate than random guesses or predictions from a layman (within error tolerance) - I believe the reference was fool.com;
so, can anybody GIVE me a reason why market analysts should be trusted for their opinions? Besides that they went through a couple years of economy schoool (which, according to my acquaintance studying economy, is mostly like astrology)?
My life in the land of the rising sun.
Sun is in dire straits, based on their latest PR campaign ("The Sun Java System") they have abandoned any semblance of technology in their technology. In a nutshell, "The Sun Java System is a radical new approach for synchronizing IT investments with business priorities by decreasing IT costs." How does this have anything to do with IT? What kind of _product_ is this?
Meanwhile, they seem to be able to demonstrate a positive cashflow even with a tough economic climate. This is a good thing, but they continue to have "one-time" expense every other quarter.
Merrill is wrong when it comes to R&D, this is clearly the only thing that can save Sun now. You don't win in the technology game by promising things like the Sun Java System; you win by demonstrating technology that cannot be obtained elsewhere.
Eric Sarjeant
eric[@]sarjeant.com
I've worked for Sun in the late 70s and again in the mid-80s
You do realize that was nearly two decades ago? That's like a century in computer years.
Mad Hatter
Both SGI and Sun were killed (past tense) by commodity hardware that was "good enough" to take away their sales even before they stopped innovating. In SGI's case, they panicked believing Itanium would come out in 1997 and kill them. They tried to switch to commodity hardware but couldn't stomach it and the dithering ate away at them. Itanium still sucks to this day (but MIPS could never break 1Ghz...).
.com boom of 2000. Now they're getting killed by Dells at the low end and grids at the high end. They have a huge number of employees because the company is feeding off historical service contracts (the same thing that's keeping SGI on life support). Sun needs to shrink, simplify, and focus or they'll be dead in 10 years also.
Sun fell down on the workstation side a long time ago, but their servers were hot thru the
Sun becoming a big player in the linux world, after all, solaris is one of the most stable version of unix out there. It wouldnt surprise me in the least if we see a headline in 5 years stating that SUN microsystems has merged with a large linux company (redhat perhaps?)
This sig was generated by a barrel of trained kittens for SeXy_Red (550409).
I stopped caring about his opinion a long time ago.
My only political goal is to see to it that no political party achieves its goals.
Disclaimer: I am not a Sun employee and own no stocks but I do contracting work for them and like the company.
;) Sparc will probably marginalize in the long run (not in the next two three years though).
Saying that Sun is focused on marketing more than technology is rediculous to anyone who knows the company from inside. Sun makes computers in the high end that few can compete with. Up to 4 CPU's go with Intel+Linux but when we go over to 8 or 16 cpu's then both cost and performance are on Sun's side.
However Linux+Intel/AMD/PPC(IBM) are getting much better and cheaper and at a point I guess Sun won't be able to compete on the hardware side, and like SGI before it will have to make a switch and let go of the large margines etc...
I feel that Sun can survive that switch, its one of the best managed companies I worked with, thats a true live demonstration of how their own technology can be used to make the employees life easier.
A simplified view would look at Sun's declining server sales and say thats it... However Sun is huge and makes zillions of other things:
1. CPU's and special hardware - Sun ray is actually selling well and limited only by the lack of marketing drive to sell it. It works with Linux also so it allows cheaper deployment.
2. Sun owns Cobalt that make great Linux boxes.
3. Sun has a huge software stack including Solaris (that has quite a few features still missing from Windows/Linux) and star office. This allows Sun to offer an almost full hardware+software stack (including the application server) with the only thing missing being a database server. Only few companies can seriously compete in this level.
4. Sun has several divisions that do outsourcing work for many global companies including cellular operators etc...
Sun has many revenue streams many of which won't dry up even if the whole world left Sparc+Solaris and moved to Linux+Intel.
The reasons for Suns decline are:
1. Moving to Linux+Intel - yes it has a serious effect on the company and changes need to be made.
2. Dot com failure - Suns biggest clients were the dot coms and when they bombed Sun is trying to move into traditional industries. This takes time.
The Sun will rise again although I doubt the Sparc will be there
I have no doubt that these guys can pull it off though.
Mainly in that their recently announce hardware and software solutions don't exist in the physical form.
So they are selling what? A roadmap to the future? Software and hardware vaporware?
* Winners compare their achievements to their goals, losers compare theirs to that of others.
It's only a matter of time before they're right. I predict the end of Microsoft. May not happen in my lifetime or my kid's lifetime, but hey... someday I'll be able to say "I told you so!". Waitaminute...
Solaris is critical to why users like Sun. Being late to Linux is unforgivable both because Linux is a kissing cousin to Unix and because Linux is a disruptive threat to Microsoft.
Sun needs to convince users that Linux is a subset of Solaris and push two messages: (1) if you're doing Linux, go to the Unix expert, and (2) use Linux on the edge, but when you need mission-critical capability it's time to graduate to Solaris.
That's incredible. Since when should a technology company be worried about disrupting a competitor? Nuts. Sun should make all the money it can and if it does so by taking share from a competitor's inferior offerings, that's great. Merrill Lynch is attempting to halt technological progress in order to protect it's worthless Microsoft holdings. This is ass backward, they should be looking out for their investors by urging them to sell Microsoft.
Friends don't help friends install M$ junk.
- To benefit the analyst (bonuses etc.)
- To benefit the bank or banking clients (see point 1)
- Publicity
The good of the standard investor or the company being invested in doesn't even come into it. The fact he's made this an open letter means he needs Sun's stock to move for one reason or another.But my experience with Merrill Lynch and my brother's experience likewise is that they are without integrity. Therefore, you cannot trust anything they say.
Just as an example, you read their advice to "convince Linux users that Linux is a subset of Solaris..."
Bud, that ain't going to happen. SCO is too busy with the exact same thing. And yes, it's great for their stock price, especially since a Microsoft-club investor is buying up as much stock as they can.
But SCO isn't healthy.
Of course, their other advice, to slash the workforce, is also in the same line: it is detrimental to the health of Sun. Let me explain what happens when you slash the work force.
First of all, all those employees who thought that they had reasonable job security, get depressed. Depression means more time wasted. It means decreased efficiency. That means more cuts, down the road. Eventually, it means you outsource everything, and end up as a shell (though maybe an IP shell like SCO, which generates lots of volatility, which might be good for Merrill Lynch).
Second of all, when you cut the workforce, employees get paranoid. That means that they start to decide that they don't have the authority to stick up (the nail that sticks up, getting hammered and all). So they don't try to innovate. In fact, they squelch innovation. They try to make it look like they're doing as good a job as anyone else, and aside from that avoid notice.
Worse than that, it sickens the company in another way: ...
Suppose you have n employees. The internal threats to a company are a function of the number of employees. A failure can happen with any one of the n employees. Or it can happen with any group of 2 employees. Or with 3 employees. All together, the probability of a failure occurring is
n + n*(n-1)/2 + n*(n-1)*(n-2)/6 +
Now, at the same time, employees don't like to see their company fail, so they do try to fix things. But their ability to fix things is a function of their authority. If their authority is not enough to fix it, then the fix won't happen, and the company takes a loss of some amount. So the same equation as above applies to the number of employees with authority: ...
a+a*(a-1)/2+a*(a-1)*(a-2)/6 +
Of course, a is less than n. So the health of a company is greater if a=n, or is as large as possible. But when you're making cuts, even employees who are nominally with authority act like they have no authority. So every single little cold, every single angry statement, every single office affair hurts the company and results in real damages.
So Sun, Don't Listen to Merrill Lynch. Unless you first exchange all your stock for all of theirs in a 100%-100% stock swap. It might not be a bad idea, at that. From the open letter, I'm sure Merrill's market analysts know how to build hardware and write software. And at that, I'd trust you guys with my assets a lot sooner than I'd trust them.
Correct Horse Battery Staple: 72 bits of entropy. Enter "Correct H" into google. When it generates the phrase, that's
As for SPARC, that's an interesting concern, and I at least see some point to the argument that Intel won, despite not agreeing.
As others have pointed out, 1) it would be utterly stupid to run a company the way some sideline quarterback thinks it ought to be done. If he was so great at running companies, why isn't he running his own? And 2) it ain't over till it's over. I'm amazed at how many people here are talking like Sun is dead. As if such things haven't happened before. There are high barriers to overcoming the market position Sun is in, but they're hardly insurmountable.
7 November 2006: The day Americans realized corruption and incompetence weren't addressing 11 September 2001
Sun was and is an expensive hardware company. They killed their own business by creating Java. Since Java can run anywhere, why would you need a big iron Sun box? You don't, you can run it on small intel/Linux boxes. Sun has created their own demise.
Furthermore, McNealy is incapable of saying two sentences without mentioning Bill Gates. He's obsessed with Microsoft and just seems to forget about his own company.
Sun is definitely finished. The writing is on the wall. N1 and Java is not going to save them.
Sun seems to be displaying the same behavior as a small retail shop being outed by a new supercenter. Instead of trying to innovate, Sun is holding on to its existing business model for dear life. The only difference in this scenario, is that the supercenter is Linux on commodity hardware.
When Java was released, it was quite obvious what it was. Sun saw that wide-appeal applications weren't being developed/ported on/to Sun platforms. The OSS productivity application suits were still pretty much in their infancy if even existing and Windows was where stuff was happening (Linux still being a tiny blip on the radar at that time). They knew that Sun also needed things like productivity packages and such applications to "round out" their offerings so they could continue to market their homogenous system workplace because many sites were forced to also bring in Windows boxes because Suns couldn't be the complete solution.
So, Sun came up with this language/system that incorporated many of the latest/best programming features with the additional benefit (especially to them) of being portable - called Java and if they could convert folks to Java, then Sun could get its applications for "free" no matter what platform the application was originally developed on.
Overall it has been somewhat of a success for Sun except that Linux started becoming interesting (even to some degree being enabled by Java) and eroding their workstation/desktop sales. With this new platform, you could still buy a Sun server for the stuff the servers are supposed to do but go with Linux clients. This isn't what Sun wanted. Java is close to what they wanted but it still requires a bit of work to port Java apps across JVMs at times.
At least to me, it is interesting to see how an effort by them to bolster and strengthen their offerings against Windows encroachment (and basically leech off of other development efforts in effect) also helps what is now one of their biggest non-Windows competitors take marketshare away from them.
I've used Suns before there was a Sparc all the way up to the E10k and have liked their hardware and support quite well. They've always had a problem offering the complete spectrum of applications even though they tried to be the whole solution.
Let me give you one crystal clear example of how Sun is its own worst enemy...
J2EE certification....
JBoss which is one of the only Open Source J2EE providers still cannot call themselves a J2EE provider. (Maybe recently solved).
Why is this?
Well, it lies because Sun made it that to become a J2EE member you have to oodles of money, and then you have pay more oodles of money to part of the official "J2EE" club.
Sun has this elitist attitude that says, "Oh, this will cost you because it is meant to be good". And NO WAY THAT WE WILL HAVE OPEN SOURCE cheapen the J2EE products. It reminds me of a Ferrari dealer telling me a Ferrari is better than any other vehicle...
Well, lad-di-da, I just want a car to go from point a to b, maybe carry the kids, dogs, and wife. Sure these "simple" cars are not as glamerous, but at least there is a business.
Now before somebody correct me on how well Ferrari is doing, let me remind them that their parent (Fiat) is dying and Ferrari is only doing better because they bought Maserrati. Maserrati sells for a fraction of a Ferrari, about the same as a high end BMW. Which again proves the point, that businesses grow when things are affordable... This is something that Sun just does not want to learn!
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
Where to begin?
This guy tells us what everybody already knows: Sun's not going well, the stock is plummeting, sales are low, market shares are shrinking, their position in the server market is unsustainable... Thank you buddy!! Do you realize all of this already hit the mainstream media? It's not news for anyone who just follows the tech industry casually. Add some obvious generalities : "Sun's mistakes are well documented, but the biggest one is believing that what made them successful in the past would make them successful in the future." All in all, we have a random guy trying to make us believe that he's smart.
So long for the diagnosis. And what cure does he suggest? Cut and focus, fire the CEO, be acquired... blah, blah, blah... Standard cut&paste from recommandations to ANY firm that's not doing well.
This "open letter" would have been useful 2 or 3 years ago. It would have been interesting if Merril had a clue about what's really going on at Sun and which options they have left.
Analysis involves more than reading the press, going through the accounts and talking to the CEO twice per year. If you want to have any informed opinion on a large company (especially in the tech sector), you need to talk to R&D, talk to the product marketing guys, appraise the quality of the people, have a clue to where the industry is going, evaluate customers' and employees' loyalty...
That's a tough job. Far tougher than picking easy scapegoats (McNealy). If you're not prepared to do it, better find a real job.
It would be nice to be sure of anything the way some people are of everything.
Everyone has failed to recognize that as the admin market has been flooded to the ninth with MS Certified everybody since the late 90's.
That means it is far more likely for a younger admin to recommend a MS or Linux system then it is to recommend Sun.
The last time I checked I did not see any Sun Certified traiing available at me local career or community college! (:-
Sun is a company that is developing excellent technology in what is considered now the high end of the technology. The problem Sun has is that they are doing it in a market where the low end is being commoditized. That is, there are no longer any volume sales that are able to support the large R&D that is necessary to continue to hold the technology lead.
/opt only to make Solaris useable.
:-).
Unlike IBM, Sun has chosen not to integrate their Unix knowledge with the commons that is the Linux source tree. That is, while IBM now develops their value added services on top of a Linux base which they get more or less for free (they chose how much money to donate to further the Linux effort), Sun must maintain their own baseline offer against something that comes at zero price on commodity hardware, and only THEN can add their own high end services on top of this.
Sun has only recently realized this. Up to and including Solaris 8 they have shipped kernels that have outrageous SMP capabilities, but also shipped an AWK that is unable to deal with more than 100 fields per line and a vi that cannot handle terminals wider than 132 characters.
And that is just the tip of the iceberg: The System V userland they licensed and inherited, is rotten from the inside, and Sun had not the developers to bring it up to the same level of excellence that their kernels show. You had to install several 100 MB of GNU stuff in
Solaris 9 is the first release of Solaris where Sun started shipping current Unix utilities (and they chose the GNU ones, due to overwhelming popular demand). But that, too, is a half-hearted offer. They'd gain more if they ported their stuff over to Linux land and built their value-added services on top of the common and free pool of code that is shared by everybode except Sun and Microsoft (and, recently, SCO
Not doing this essentially means that they are trying to outcode the entire rest of the world with their own developers. Which, brilliant or not, they cannot do.
The problem they are facing it how to pull an IBM so late in the development. That is, how do they sell their existing base that this is a soft migration when they no longer have the time to make it a soft migration, and how do they sell the existing Linux players that they are now a well-behaved member of the community when they have derided the Linux effort for so long.
But that's a marketing problem to be solved after the technology decisions have been made. Sun is not even at that point, yet.
Kristian
While you and I know that Sun should have embraced free software long ago, ML's Milunovich recomends just the opposite. Recomending that Sun make it clear that they "aggresively support Linux" he also recomends that Sun cut it's own development efforts, " [Sun's]Solaris, Linux, Orion, Mad Hatter, N1, SPARC, x86, storage, Java-'The Network is the Computer' tent is bursting at the seams," he wrote of some of Sun's main product and services lines. You can imagine what kind of headlines MSNBC would come up with if Sun were to drop any of it's free software efforts.
The rest of the message looked like it came straight from a M$ press release. What's lower than a "corpse" in a "nitch" at the bottom of a "tech ravine"? They might as well have called the company whale shit. The personal comments directed at Scott McNealy, while typical of Microsoft name calling, have no place in profesional advice.
Friends don't help friends install M$ junk.
Isn't this the guy that predicted Microsoft was inevitably doomed by 2004 or so? Because the profit margin had nowhere to go? Doomed. He seems to use that word a lot.
Sun isn't going anywhere, and if the Merrill Lynch "open letter" was an official company communication, I'll be shocked. Anyone wanna bet that the guys that wrote it will be called in on the carpet for exposing it publicly? Most public evaluations of companies aren't put into such informal language. "His act is getting old" is a bit suspect.
Sun has 5 billion in cash reserves, and a profitable high end server business that will shrink somewhat, but not completely. It's utterly foolish to write this company off at this point. I know it's a popular thing to do around here becaue of the way they play footsie with Linux, but I'm afraid you all are going to be dissapointed if you're waiting for Sun to go belly up, or be bought out anytime soon.
Oh, and Eric should stick to open source advocacy. Because his economic predictions are kind of suspect at this point....
Life is hard, and the world is cruel
"Overall it has been somewhat of a success for Sun except that Linux started becoming interesting (even to some degree being enabled by Java) and eroding their workstation/desktop sales."
In my experience that's not exactly what is happening. Unix desktop sales were a dead end in the mid/late 90's. Performance improvement on x86 made them irrelevant even in the high end desktop space. So, corporations were starting to look at replacing them with Windows where the workers also had access to other company standard products.
However, in the late 90's Linux started becoming a viable alternative. Combined with better desktop than CDE, more stable than Windows, less porting of unix applications needed, viable solutions for MS software through vmware/wine/ooffice, it became a usable compromise with the best of both worlds. An alternative to switching to Windows, not an alternative to staying with Sun/HP/SGI/IBM.
The marketshare that Linux is taking from Sun and other Unixes is marketshare they've already lost. The fact that it's going to Linux does not change that it would have gone to MS otherwise.
Sun shouldnt fret about marketshare lost to Linux. Sun should be grateful about it because that, at least, allows them to stay in the game, which they wouldnt be able to do if the marketshare was lost to Windows instead.
Sun puts all its energy into the Solaris scalability features, and ignores some pretty basic things that make the operating system have the flavor of a Victrola.
Let's just run through a few of the problems:
Sun has this attitude of "if it's not in the SVR4 codebase, then it doesn't go into the Solaris base install." This is just dumb. I realize that it is important to preserve compatibility for old shell scripts and utilities, and that Sun has taken some strides with Gnome and perl integration, but 95% of the new and interesting work in UNIX is taking place in the GPL and BSD spheres of influence, which Sun mostly ignores.
In many respects, Solaris has been at a standstill for the past 10 years.
What would Dell spend R&D money ON? Comparing Dell to Sun is silly. Sun = Dell + Microsoft + Intel. Dell is just the shipping and receiving department of DellWinTel.
But, if you're looking to drop $1.3 million on a computer, you go to Sun.
Just because Sun overcharges for their computers doesn't make them a "high-end market provider".
If I'm going to spend $1.3 million on a computer, I might just as well go with IBM. Of, depending on the application, set up a large cluster out of PC hardware, like Google and many other companies.
As far as I can tell, the only thing that has been keeping Sun above water is the fact that they used to have proven, high-end multi-processor machines, which you need if you use a large, non-distributed database. But with the increasing availability of distributed databases, very high speed networks, and people who are getting smarter about distributed systems, the importance of that is fading fast. And, of course, IBM in particular has added high-end UNIX machines to their offerings, in addition to their mainframes. In fact, much of Sun's remaining business was business that Sun had taken away over the years from IBM and that is now going back to IBM (the other big part of Sun's business was academia and research, but I don't see Sun being a dominant player there anymore).
Sun OS is about as stable as they come.
Actually, Sun is running Solaris now. And their OS has had plenty of serious bugs over the years. Furthermore, it simply isn't competitive. If it came on the market today, it would be laughed at. The only reason why people are still using it is because they have been using it for years.
Believe it: Sun is in trouble.