Case Study on Business Strategies: 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 Silicon Graphics.

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 business.

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 vendor.

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.


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