The Downfall of Sun Microsystems
Sun Microsystems has been described as “the last standing, fully integrated computing
company adding its own value at the chip, OS and systems level.” The product line of Sun
Microsystems include servers and workstations, Solaris operating system software for
client-server networks, UltraSPARC and Java microprocessors, Java Internet software, and
enterprise-wide support services. The major competitors of Sun Microsystems in the
technical and scientific markets were primarily Hewlett-Packard (HP), IBM, Compaq, and
The information technology industry was extremely competitive and characterized by rapid
and continuous change, frequent product improvements, short life cycles, and price
reductions. This environment was forcing Sun Microsystems to rapidly and continuously
develop quality products and services at competitive prices. By 1998, Sun was the leading
provider of UNIX-based servers with a U.S. market share of 26% of all web servers in use.
Sun was also a strong force internationally – approximately 49% of its total revenues were
generated outside the U.S. It was the world leader in workstation sales with 39% in unit
sales and 35% in dollar sales.
Between 1988 and 1998, Sun’s revenues had grown an average of 34.1% annually as the
demand for its open network computing products rose. Its net income had grown 41%
annually on average over the same time period. By 1998, however, some problems were
beginning to emerge. Profits had flattened and Sun’s control of the Java programming
language (which Sun had developed) was increasingly being challenged.
The problems could be neatly summed up by saying, when the fish are jumping in the boat,
sun focused strategy on building the biggest boat. Sun ended up with $7.5 billion in cash,
(Corcoran, 2005). Pervasive quality problems and a real strategic disconnect with where the
market was quietly heading in part because Sun Microsystems were much more interested
in monetizing the high end customers than Sun is worrying about the adoption of the core
software assets on the low end.
Sun Microsystems focus strategy tends be product-oriented firm rather than customer-
oriented firm. The company has poor marketing practice and ignored the customer’s needs,
and also, the overall quality of its operations of marketing the products, and business
practices were relatively poor compared to the other firms such as Microsoft. Moreover the
biggest customers of Sun have today are the customers that subscribed to Sun’s core
hardware and software architectures a decade ago.
Sun’s overall strategy suggests that company focuses on their UltraSparc stations
(Hardware), which eventually has no future. Company’s main revenue generator is there
Java and J2ME (Java to micro edition, embedded software in 3rd and 4th generation mobile
systems), and company is swapping and pouring the large sums into UltraSparc
development in the past and is being forced to do so even now, but UltraSparc has been
clinically dead for a long time now. It lags benchmarks and likely costs the company more
than 50 percent of its R&D budget taking from J2ME.
The prime reason that Sun Microsystems have not fully understood and embrace the TQM
concept, They were looking for quick fix, whereas implementing a quality improvement
program is a long-term commitment.
Sun Microsystems Interoperability with x86 (Intel) Strategy.
Over the years Sun Microsystems has been extremely apprehensive of Linux operating
systems, and x86 based servers. Sun did recognize cheap x86 (Intel, compatible and non
Compatible hardware) as a threat long time ago, but the company didn’t know what to do
about it. Sun was afraid of entering the x 86 markets as the margins in the x 86 markets
were not healthy, and such a move would have cannibalized its high-margin UltraSparc
After the dotcom bubble burst, Sun made a number of bizarre moves with regards to the x86
markets, but these days Sun looks firmly committed to a game plan. Solaris x86 which Sun
was once planning to discontinue has become central to the company’s plans. Sun is cutting
back on UltraSparc development, and is readying itself to pursue life as a major x86 server
According to a report by The Register, Sun will be rolling-out a number of in-house
engineered Opteron based servers and storage solutions in 2005. Another report by The
Register claims that, Sun is planning to sell 414,000 Opteron based servers in 2007, and the
company is aiming for a double-digit share of the x86 server market.
Some of Sun’s x86 gains will surely come at the expense of its high margin Sparc business so
the company has to compensate for that loss. But, Sun can’t expect to gain market share
quickly if it doesn’t price its x86 hardware competitively. Sun is faced with two conflicting
goals in the x86 market, but the company has figured out a way to extract decent margins
while pricing its x86 hardware competitively.
Sun also intends to combat the Linux advantage by assuring that the money it puts in Solaris
yields a competitive advantage in the form of clear technical superiority over the
competition. Sun will also attempt to tightly integrate software and hardware development
in order to quickly bring advanced functionality to the market. But, the real key to Sun’s
success will be volumes.
If Sun manages to sell millions of servers, Sun Solaris operating system development costs
will get dispersed over the large number of units shipped and become irrelevant. Moreover,
Sun will be able to make money from add-on sales, and service/maintenance contracts. Also,
Solaris operating system will displace Linux operating system as the open source operating
system of choice, and this will allow Sun to steal IBM and HP’s UNIX customers.
If Sun’s Opteron sales takeoff, the company will become less reliant on UltraSparc revenue
and the incentive to keep wasting money on UltraSparc will diminish.
Sun has placed a very bold bet on x86, and the company will emerge highly profitable and
competitive if it manages to execute its game plan effectively. The downside is that if the
game plan fails so will Sun. In that case, Sun will get swamped by hardware and software
development costs and quickly goes out of business.