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Sun 12 Jun 2005 04:00 AM

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IT Weekly Middle East Newsletter 12th June 2005

Hard to believe but Sun was once the hip, young gunslinger of the IT industry. A decade ago, its slogan “The network is the computer” seemed a daring, radical statement. During the days of the dot com boom it was freely described as one of the ‘four horsemen of the Internet’, one of the companies — along with Cisco, Oracle and EMC — that start-ups and traditional firms alike flocked to, believing that their products were the best choice to run their internet operations on. And Sun supremo Scott McNealy was seen as a serious rival to Microsoft boss Bill Gates as an IT visionary. Hard to believe.

Sun makes its move|~||~||~|Hard to believe but Sun was once the hip, young gunslinger of the IT industry. A decade ago, its slogan “The network is the computer” seemed a daring, radical statement. During the days of the dot com boom it was freely described as one of the ‘four horsemen of the Internet’, one of the companies — along with Cisco, Oracle and EMC — that start-ups and traditional firms alike flocked to, believing that their products were the best choice to run their internet operations on. And Sun supremo Scott McNealy was seen as a serious rival to Microsoft boss Bill Gates as an IT visionary. Hard to believe.

The dot com bust hit all the horsemen hard, but Sun was undoubtedly hit the hardest. While Oracle and Cisco rode the storm, and EMC stumbled but recovered, Sun has yet to come out of its slump. The company has reported losses in all but four of its last 16 quarters, and its server market share is steadily declining, according to analysts. Rivals such as IBM and Dell are seeing more of the server market recovery than Sun is. A company, which had gained a big reputation for making bold moves, has been struggling to find one which can get people excited.

That hasn’t been for want of trying. The company has worked hard to position itself favourably with the open source community, making some of its source code available for developers. Earlier this year, it announced ambitious plans to sell computing power online for US$1 per hour for each CPU (see IT Weekly 12-18 February 2005), claiming that computing is becoming a commodity item and should be bought and sold as such. The scheme has its merits, but it hasn’t made much difference to Sun’s share price: Wall Street hasn’t gotten excited by the idea, which suggests customers aren’t thrilled either. Wall Street’s opinion matters for IT firms: just ask former HP boss Carly Fiorina, who famously couldn’t raise the company’s share price following its takeover of Compaq. Exit stage left for Fiorina this year.

So Sun, and its boss McNealy, needed another big idea, one that would get people excited. Its solution is a time-honoured one: buy your way out of trouble. As one of the bosses of another ‘internet horsemen”, Oracle CEO Larry Ellison, once said the sure sign of a struggling company is that it starts writing cheques to buy itself out of trouble. Since he has been writing some big cheques himself in recent months, that claim may be taken with a pinch of salt, but in any case Sun has this month announced that its going to write a very big cheque indeed: it is buying storage outfit StorageTek for US4.1 billion.

Reaction to the deal has been varied, with some believing that buying a firm which has steady revenue streams makes good business sense, while others point out that Sun has effectively saddled itself with an company which is seeing its core business — tape — be superceded by a newer technology, disk. For McNealy however, the deal makes perfect sense: “Our customers will be thrilled to death,” he told reporters after the deal was announced. Storage and data management issues are key to solving network computing problems, he said.

With the purchase of StorageTek, Sun will be able to offer its customers a credible solution to all their problems. Or at least, that’s the theory. Don’t expect the acquisition trail to end with StorageTek, with Sun having a US$7.6 billion cash pile to play with before the StorageTek deal and executives saying that it will make other purchases sooner rather than later. But while Sun can still make a few more purchases of its own, it remains to be seen whether customers will buy it — or its products.
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