Sun Microsystems, the Silicon Valley high end networking hardware and software manufacturer, announced their mid-quarter financial reports on Wednesday August 29, 2001. The industry giant’s fiscal first quarter ends in September but their Chief Financial Officer, Michael Lehman, noted that two months into the first quarter demand in Europe and Japan has been less than expected. Although demand in the United States was near expectations, Lehman told analysts "it will take a very large month in September in terms of demand for us to meet the breakeven point" of $3.7 billion (US) in revenue.

This hasn’t been a good year for Sun. The company instituted mandatory unpaid “vacations” for their more expensive employees, posted their first loss in twelve years in July and will eliminate 300-500 jobs by the end of the year (Certain employees were told to find another job somewhere else in the organization or be fired within 90 days. This action was termed a “redeployment” of human resources by the company). Sun’s networking products suffered due to their inability to ramp up the Sun SPARC processor, the brain of their high end servers, to competitive industry-standard levels of 1 GHz and the exclusion of support for their popular Internet programming language for web content, Java, in Microsoft’s new Windows XP operating system.

Sun's recent money woes, according to CFO Lehman, are due to the worldwide economic downturn. Sun is a one-stop shop for all things related to e-business and networking. Sun primarily sells their powerful servers, software and support services directly to big money corporations, universities and government agencies. Lehman said that Sun’s server prices haven’t changed much since last quarter but doesn’t see that as a problem. “I just do not...hear us losing that many deals to anyone in particular,” he said.

Sun claims that it’s not their inflexibility in pricing that’s the problem, it’s attributable to the high-tech market slump. Dan Niles, an analyst from Lehman Brothers, agreed saying: “I think it's primarily the macroeconomic environment” that’s hurting all tech companies and that increased competition is a “very minor” part of Sun Microsystems troubles.

You heard it right: A multibillion-dollar international corporation is blaming their financial problems solely on a relatively weak economy rather than its unwillingness to lower prices and stay competitive. I can’t believe there wasn’t a laugh track playing during this conference call. Did Sun’s financial department contact P.J. O’Rourke to write one-liners for them?

Sun Microsystems’ servers have a reputation among IT professionals as some of the best in the business, but they are just too darn pricey. Sun, like Apple Computers before them, have taken the attitude that their systems are the best and that customers won’t mind paying extra for them. This worked for Apple when they were the only powerful and easy to use personal computer on the market but where is Apple on today’s PC totem pole?

While looking at current prices for the name brand computer servers, it’s not hard to figure out why Sun is losing market share. A Sun Enterprise Ultra 5S 400 MHz low-end server sells for $1,995 while 800 MHz servers from IBM, Compaq and Dell cost $500-$1,000 less. Sun cannot seriously be blaming a soft economy for companies not wanting to pay the extra thousand bucks per server with half the CPU speed. Analysts cannot honestly say that competition isn’t a factor in Sun’s declining revenue.

Competition is always the reason for companies to succeed or fail! Sun is no exception and can’t blame anyone other than themselves.

Unfortunately Sun has a history of blaming others for their mistakes and lost opportunities. Sun’s CEO, Scott McNealy, invested his corporation’s efforts into countless endeavors that have either fallen flat or have yet to pay off. In 1989 Microsoft's new Windows operating system was late and buggy; to many IT pros the Sun system was an excellent mass-market proposition. McNealy decided the low margin/ferocious competition mass-market world was small potatoes, and it was more profitable to sell their high-priced servers to the Wall Street brokerage firms as replacements for bulky and even more expensive IBM mainframes. This made Sun a lot of money, but Microsoft Windows slowly built up until 90% of all home and business desktop PC were running it.

Sun’s Java programming language is an industry leading technology on the Internet. Microsoft was an early adopter of Sun’s technology and wanted to incorporate Java into their Internet Explorer web browser in the mid-90s. Sun initially partnered with Microsoft to make Java compatible with IE but McNealy later accused Microsoft of trying to steal Java by modifying Sun’s technology to work only on Microsoft systems. Microsoft’s side of the story is that McNealy bashed Microsoft Windows in the press and repeatedly called Java a “Windows killer” Internet application. Sun engineers provided Microsoft with less and less support for Java, forcing Microsoft to make their own adjustments to Java in the interest of compatibility with the IE web browser. Soon, the Java in IE was almost nothing like what Sun licensed to Microsoft and McNealy cried foul. McNealy objected to the fact that Microsoft’s tinkering with his technology meant that Sun could no longer ask for the full price of licensing Java for use in IE.

McNealy again vocally denounced Microsoft in the press, sued to keep Microsoft from using Java in 1997 and jumped on the “Microsoft monopoly” bandwagon in the government antitrust lawsuit. In 2001, Microsoft settled with McNealy’s Sun Microsystems with a $30 million (US) payout and promised not to use Sun’s Java in future products. When Microsoft announced that their new Windows XP operating system would not include built-in support for Java, McNealy paid for full page ads in major newspapers complaining that Microsoft’s monopolistic practices “shut out” Sun from the marketplace. The ads urged all consumers “demand” that Microsoft include Java support in Windows XP. Didn’t Sun just sue Microsoft so that they wouldn’t include Java in Windows XP? Try “demanding” that your wife be ready to go to the movies at eight when the movie starts at seven. Make sure to sue and accuse her of monopolistic bathroom practices when you miss the first half of the movie.

Microsoft will offer their proprietary four year-old Java for PC Original Equipment Manufacturers (OEMs). Customers who buy from these OEMs will have Java support for XP when they buy a new Windows XP computer. This choice is completely voluntary and beneficial to customers because it gives the OEMs a chance to test the Microsoft Java on their XP systems before selling them to customers. Gateway has chosen to ship their XP systems without Java support, saying that the five-megabyte Java download from the Internet is convenient enough for their customers. Compaq and Dell say they will ship with the Microsoft Java pre-installed. Will anyone ship the Sun Java? It would be doubtful since Sun won’t have their Windows XP-compatible version of Java ready until late October.

Sun is going to do everything possible to make that breakeven point in September. Let’s just hope they do it through hard work and wise decisions rather than finger pointing and litigation.

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