Sun’s Workstation Juggernaut Is Still Barreling : Technology: It also plans to expand into other lines. But rivals are going after its lucrative core business.
Nearly a decade ago, four Stanford University Business School graduates had an idea: Take existing high-tech parts and make desktop machines called workstations with far more power than personal computers.
Workstations weren’t new, but the four upstarts who formed Sun Microsystems Inc. ran with the technology to create the fastest-growing U.S. company in the mid-1980s and the top maker of computers for engineers and scientists.
Now, the $3.2-billion company--as well known for its beer busts and April Fool jokes as its engineering and marketing prowess--wants to move into the office and become a software star too. And it wants to do this at a time when it is facing its toughest competition since its founding in 1982.
“Sun is sitting pretty right now,” said industry analyst Richard Chu of Cowen & Co. in Boston. “But just about everybody is going after them.”
Scott McNealy, Sun’s co-founder, president, chairman and chief executive, says he isn’t worried.
“Some of our competitors are incredibly unfocused,” McNealy said in a recent interview in his Palo Alto office, across from Sun’s Mountain View headquarters. “A lot of (computer) users are confused.
“Our customers are like catchers in a baseball game. We’re pitching fast balls, but we tell them exactly what we’re doing. The catcher has to know what the pitcher is throwing.”
This summer, International Business Machines Corp. and Apple Computer Inc. pitched a technology-sharing pact aimed at creating machines and software that could challenge Sun. Products from the alliance aren’t expected to reach the market for at least a couple of years.
At the same time, some 80 companies launched the Advanced Computing Environment (ACE) initiative in April. It is targeted at workstations and Sun. Companies in the effort include industry leaders Microsoft Corp., Compaq Computer Corp. and Hewlett-Packard Co.
ACE hopes to promote rival technology so Sun’s high-tech parts don’t become de facto standards. Mips Computer Systems Inc. makes the RISC (reduced instruction-set computing) microprocessor for ACE, which rivals Sun’s RISC-based Sparc computer “brain.”
“I don’t know why all these alliances form. Probably out of no confidence,” McNealy said, while admitting that he, like nearly every CEO in the industry, has held alliance talks with others. “But it all comes down to internal execution. Internal execution is what Sun concentrates on.”
From the outside, Sun’s internal execution appears almost flawless--except in the fourth quarter of 1989. During those dark 90 days that severely tested McNealy, Sun introduced too many products, then had inventory control problems when a new computing system failed. The company reported its only losing quarter, a $20.3-million shortfall on $431 million in revenue.
McNealy--whose name tag on his desk dubs him “chairman and cheap operator”--pared expenses and did away with costly duplicative departments that had grown out of expansion efforts.
This past spring, Sun again branched out, creating several subsidiaries to concentrate on specific parts of the industry--such as software, networking, computers and peripherals.
During its most recent fiscal quarter, while most computer companies saw flat sales or red ink, Sun reported a profit of $27 million, or 27 cents per share, for the period ended Sept. 27, on sales of $755 million.
In 1990, Sun controlled from one-third to two-fifths of the $7.4-billion workstation market, which is expected to hit $9.7 billion this year.
Sun uses an “all the wood behind one arrow” slogan, meant to describe a company focused on one goal--workstations. As an April Fool’s joke in 1990, Sun employees built a 60-foot-long arrow in McNealy’s office with the point going out the window. (Previous jokes include moving corporate offices onto ponds and building a one-hole golf course in McNealy’s office.)
Usually, the arrow is aimed at a competitor.
“It has been said that Sun doesn’t have competitors, it has enemies,” said Laura Conigliario, an analyst with Prudential Securities Inc. in New York. “That has a lot to do with Scott McNealy.”
Of the four Sun founders, Vinod Khosla (the only one no longer with the company), contributed entrepreneurial experience. Engineer Andy Bechtolsheim contributed his computer hardware expertise. Software guru Bill Joy developed the version of the powerful UNIX operating system used by Sun. And McNealy, who often boosted the troops during monthly beer busts, gave the company direction and personality.
“This is all a game of chicken,” McNealy said. “We just pick a path and floor it. And nobody better get in our way because we’ll run them down.”
When Sun’s Sparcstation sales took off in the mid-1980s, the company hit the $1-billion revenue mark in 1988 after only six years in business--a year faster than Apple and only one year longer than the record set by Compaq.
Most of Sun’s $5,000 to $250,000 workstations have been sold to scientists, engineers and programmers, instead of to businesses as replacements for weaker PCs and outdated minicomputers. That’s changing.
During the past year, Sun’s workstation sales to commercial businesses and government agencies hit 17% of its total, thanks to customers such as Northwest Airlines, Eastman Kodak Corp. and department of motor vehicles offices from Illinois to California.
