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Sun Microsystems

In: Business and Management

Submitted By RickeyLC
Words 1141
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Andreas Bechtolsheim, William Joy, Vinad Khosia, and Scott McNealy founded Sun Microsystems in 1982 with the intention of selling low-cost, high- performance desktop computers running the UNIX operating system. These computer workstations found instant acceptance among scientists, engineers, and software developers who benefited from having dedicated machines, rather than sharing costly minicomputers or mainframe computer systems. Sun Microsystems did not have revenue from other sources to fund the research and development of its computer workstations. To develop a hardware-manufacturing infrastructure and to attract top-flight hardware and software engineers, Sun Microsystems needed hundreds of millions of dollars in start up costs as well as large purchase agreements. In 1983, Sun Microsystems signed a multimillion-dollar original equipment manufacturer (OEM) agreement with Computervision Corporation. Shortly after, Sun Microsystems signed large OEMs with Eastman Kodak Corporation, AT&T Corporation, and Xerox Corporation. The OEMs for which Sun Microsystems built computers that sold the workstations under their own labels brought the company strong revenue and profit growth. Sun Microsystems passed $1 billion in annual sales in 1988, just six years after start-up. Only Compaq Computer Corporation had reached the billion-dollar mark faster. In an effort to overcome some of the problems associated with networking different manufacturers’ machines while running different operating systems, Sun Microsystems introduced the Java programming language in 1995. Java was designed to be a universal computer language that would not have to be rewritten for each computer operating system. Java was and remains to be a driving force in the success of Sun Microsystems. For years, Sun Microsystems enjoyed great success with relatively no competition in the computer server industry. The company’s success took a downward turn during a global economic collapse starting in the late 1990’s and a huge increase in technological advances. The technology boom in the early 2000’s introduced many new products. One of which was the x86 platform which stands for central processing units developed by Intel. With the technological advances, many companies were able to offer products similar to Sun Microsystems’ but at a fraction of the price. The biggest threat to Sun Microsystems came with the introduction of Linux. Linux, compared to Sun Microsystems, was inexpensive, competitive, and very opposite in that it was an x86-based software product. The introduction of Linux drastically affected Sun Microsystems’ offering of a product where software, hardware, and service where bundled together. With the introduction of Intel’s processors and Linux’s operating systems, customers were now able to mix and match those services. The company business model aimed at increasing their revenue through the foreign market. By 2003, more than 50 percent of Sun Microsystems’ revenue depended on the foreign market. Chief Executive Officer, Scott McNealy, placed Masood Jabbar in charge of worldwide sales. Jabbar was to formulate a strategy to capitalize on Sun Microsystems’ momentum and reputation for innovation. Jabbar developed a strategy that focused on five countries he felt to be billion-dollar-a-year markets. Those countries were Brazil, Spain, China, India, and Italy.
A key contributor to the decline of Sun Microsystems’ dominance in the computer server industry is thought to be placing too much importance on the foreign market and not enough on the U.S. market. By placing so much emphasis on expanding and capturing the foreign market, Sun Microsystems let the competition catch up. New technology and products were being introduced that mirrored what Sun Microsystems was offering, but at a fraction of the price. Sun Microsystems attempted to compete with competitors such as Dell, Hewlett Packard, and IBM, based on price, but was unable to do so because of the competitors’ ability to sell products in high volume. Sun Microsystems’ plan to capture the foreign market failed, and an emphasis on innovation through heavy investing in research and development became the company’s primary objective. Sun Microsystems realized change was necessary to regain the success the company experienced in its earlier years. Linux and x86 based products became part of Sun Microsystems’ strategy. The company placed a heavy emphasis on research and development. By spending more than the competition in research and development, Sun Microsystems hoped to gain an edge and become the innovative company within the computer server industry. Sun Microsystems had the advantage in that they had changed the industry before with new products and technology, the major concern was could the company simply rely on innovation to change the direction of the company. Sun Microsystems expects to spend $20 billion to $30 billion in research and development over the next decade. My concern for the company is that the technology available in the industry has peaked. Global competition now exists in every industry and more and more companies can offer similar products at reduced prices. Strategic partnerships are very important in Sun Microsystems’ strategy. The company realized in order to remain in the industry they needed alliances with other companies. An example is the alliance formed with the Japanese based company Fujitsu. A benefit of this particular alliance was Sun Microsystems ability to increase revenue through a licensing agreement between the two companies. A negative to any type of business alliance is the threat of technology being exposed to the competition. This is especially important in an industry such as computer servers where technology is king. Sun Microsystems experienced very successful financial performances from 1996-2001. The gross profit rose from $3.1 billion in 1996 to $8.2 billion in 2001. Again, in this era Sun Microsystems was on top of the industry. The x86 platform and Linux operating system had yet to be introduced and Sun Microsystems saw their gross profit rise virtually every year from 1996-2001. Things started to unravel in 2002. The gross profit fell to $4.9 billion and has remained relatively the same through 2005. Looking at those statistics, one might say that Sun Microsystems’ strategy of trying to outspend the competition on research and development is not working. On the other hand, maybe the competition has leveled off and the best Sun Microsystems can hope for is to maintain their current position. In my opinion, the technology field is most susceptible to change and seems to do so overnight. Sun Microsystems has vowed they will not be overspent on research and development, and the next day could just be the one that changes the company’s direction. In my opinion, the biggest downfall of Sun Microsystems was placing too much emphasis on capturing the foreign market and not focusing on the products that they were offering. As stated earlier, the company believed that Brazil, Spain, China, India, and Italy were potentially billion-dollar-a-year markets. The success the company envisioned in those markets never came to fruition and the competition simply caught up. Sun Microsystems was created with the vision of “The Network is the Computer”.

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