Sun Microsystems Inc.

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Sun Microsystems Inc.

founded: 1982

Contact Information:

headquarters: 2550 garcia ave.
mountain view, ca 94043 phone: (415)960-1300 fax: (415)336-0646 toll free: (800)801-sunw url: http://www.sun.com

OVERVIEW

Sun Microsystems, Inc., a Fortune 500 company, is a leading supplier of enterprise network computing products, including workstations, servers, software, microprocessors, and a full range of services and support. To maximize profit opportunities for Sun, in 1991 the company was split into five businesses, each with its own profit and loss responsibility. Since then the highly-focused structure has expanded to six units. These units include Sun Microsystems Computer Company (SMCC), SunService Division, SunSoft Inc., Sun Microelectronics (SME), SunExpress Inc., and JavaSoft. Sun is focused on linking and managing enterprisewide global networks. Through its software, hardware, and service offerings, the company is well positioned for the open, networked world that will dominate the industry. Sun's revenues have grown an average of 35.3 percent annually over the past decade as demand for its open network computing products and services increased. The company has 40 percent of the UNIX market, which is about 10 percent of the total desktop market. The company continues to post impressive financial results with both accelerating revenue and profits.

COMPANY FINANCES

In fiscal 1997, ending June 30, 1997, Sun Microsystems recorded net earnings of $762 million on revenue of $8.6 billion, compared with net income of $476 million on revenue of $7.1 billion in fiscal 1996. Per-share earnings in fiscal 1997 were $1.96, compared with $1.21 in fiscal 1996. In fiscal 1995, Sun posted net earnings of $356 million on revenue of $5.9 billion, compared with a net of $196 million on revenue of $4.7 billion in fiscal 1994. Per-share earnings in fiscal 1995 and 1994 were $.91 and $.51, respectively.

Sun's sales in the United States accounted for 55 percent of its total revenue in fiscal 1997, while European sales generated 25 percent of revenue. Sales to Japan contributed 11 percent of Sun's total revenue, and other sales accounted for the remaining 9 percent of revenue.

ANALYSTS' OPINIONS

Although competitive pressures from the Windows NT marketplace create some uncertainty, some analysts believe Sun is well positioned to show favorable revenue and earnings gains over the next few years. Many analysts also feel Sun is ideally positioned with its leadership in network computing and the Internet. Furthermore, they expect the historical orientation of the company and its leadership role in the Internet to ensure that Sun's influence will grow. Business Week, referring to Sun's Java environment, positioned it at "the center of the computer universe." In March 1997 Sun was awarded the "Energy Star Office Equipment Partner of the Year Award" in the "Best Internal Promotion Category" by the Environmental Protection Agency. The award was based on Sun's companywide implementation of energy-saving software. Finally, according to Business Week, Sun is "the most efficient company in the industry."

HISTORY

Sun Microsystems Inc. was founded in 1982 on the premise that "the Network is the Computer." This simple, yet revolutionary, concept helped change the face of the computer and has propelled the company into a thriving $8-billion enterprise. Sun quickly became a major force in the growth of the technical workstation market by dominating the industry as unit shipment leader. Andreas Bechtolsheim designed the original Sun workstation, the SPARCstation, while he was a graduate student at Stanford. Bechtolsheim's computer project captured the interest of Vinod Khosla and Scott McNealy, each of whom had experience and interest in the computer industry. They founded the company along with UNIX guru William Joy. In 1986 the company went public.

For more than 10 years Sun has been instrumental in shaping the industry's perception of open systems. Sun began to address the commercial market in the early 1990s, leveraging its initial success with financial institutions and the telecommunications industry. With the introduction of its two families of servers, between 1992 and 1993, Sun began to be a serious competitor in the enterprise computing market.

In a daring competitive move in May 1998, Sun cut prices by as much as 27 percent on its UltraTM5, Ultra 10, and Ultra 60 workstations, while boosting performance by up to 43 percent with the introduction of a new 360MHz Ultra 60 workstation.

FAST FACTS: About Sun Microsystems Inc.

Ownership: Sun Microsystems is a publicly owned company traded on NASDAQ.

Ticker symbol: SUNW

Officers: Scott G. McNealy, Chmn., Pres., & CEO, 42, $2,500,000; Edward T. Zander, COO & Pres., Sun Microsystems Computer Co., 50, $1,100,000; Alan E. Baratz, Pres., Java Software Division, 42; Lawrence W. Hambly, Pres., Customer Services Division, 51, $700,000

Employees: 21,500

Principal Subsidiary Companies: Sun Microsystem's selected subsidiaries include: Sun Microsystems Computer Co.; Sun Microsystems Federal Inc.; SunPro Inc.; SunSelect; Sitka Corp.; Sun Microsystems Laboratories; SunSoft Inc.; Sun Express Inc.; Sun Technology Enterprises Inc.; and SunService Division.

Chief Competitors: As a major player in the computer hardware and software markets, Sun Microsystems faces keen competition on both fronts. Its major competitors include: Compaq Computer Corp.; Dell Computer Corporation; Hewlett-Packard; Digital Equipment Corp.; Microsoft Corp.; Silicon Graphics; International Business Machines; and Intel Corp.

STRATEGY

Sun's business model is based upon aggressive pricing, attention to customer satisfaction, and effective use of indirect channel partners. The company has differentiated itself from its competitors by its commitment to the network computing model and the UNIX operating system, its rapid innovation, and its open systems architecture. In addition, the company has wide distribution channels successfully marketing new product offerings. Sun's many business alliances enable the company to broaden its market presence and to deliver new technologies and services to the market quicker, while shipping products within days or weeks, and keeping inventory and backlog at a minimum. Complementing Sun's strong strategic position is its new generation of systems based on the 64-bit UltraSPARC and UltraSPARC II. The company also plans to spend more than $1 billion on research and development in fiscal 1998, according to CEO Scott McNealy.

INFLUENCES

From 1992 through 1994 Sun was in a difficult position, as its microprocessor performance lagged behind that of its principal competitors. Since then Sun has reestablished a competitive product line and, more importantly, repositioned itself in the middle of the enterprise networking market. Therefore, the company can take advantage of the Internet market, where it is a leader. The company is focusing on network-driven, UNIX- and Java-based system solutions. Network solutions and Java are driving demand at Sun, with the United States a strong market for all products. Originally developed by AT&T in the 1960s, UNIX has undergone decades of refinement at many corporations and universities. Sun's Solaris operating system is the industry's leading version of UNIX with more than 12,000 applications. Recently, Sun and the Oracle Corporation tightened their alliance against archrival Microsoft, announcing an agreement to sell a package of Oracle's database software (Oracle8) with Sun's business computers. With Oracle's software the Sun computers enable businesses to run networks of smaller machines. The deal is aimed to compete with the growing threat of Microsoft's popular Windows NT operating software. In particular, Oracle8 will be offered for Sun's new Enterprise 450 server (introduced in August 1997), which Sun claims is similar in price to comparable Windows NT-based servers. Also, as part of the agreement, Oracle and Sun will conduct joint marketing and sales including a national advertising campaign beginning in the fall of fiscal year 1998.

After Microsoft Corporation purchased WebTV and Oracle Corporation purchased Navio, Sun followed up and acquired the small start-up company Diba Inc., in August 1997. Diba creates technology for devices that scan the television and the Internet, such as satellite boxes for Internet-enabled televisions and smart phones. This is just one more of Sun's strategic ventures to stay ahead of competition.

CURRENT TRENDS

Sun has also entered the storage arena, where it competes with EMC Corporation, IBM, Hewlett-Packard, and Digital Equipment. However, according to Forbes magazine, Sun is ahead of its competition in the storage system business. Therefore, says Dataquest analyst Tom Lahive, "Sun's gross margins on these storage devices could be anywhere between 35 percent and 40 percent." The increasing need to store data—for use on the Internet and on internal corporate systems—has created demand for these products. Sun's goal is to be the market-share leader for UNIX storage devices within the next 2 to 3 years. In order to achieve this goal Sun entered a definitive agreement on July 17, 1997, to acquire the assets of Encore Computer Corporation's storage business. This purchase would significantly expand Sun's presence in the open storage market to $35 billion by the year 2000.

Sun has undergone a dramatic shift in its image from a workstation vendor struggling against strong competition to a systems manufacturer with a dominant position in the networking business in general and Internet-related applications in particular. Since the invention of the Java programming language, Sun is making Java a universal Internet operating system by offering an alternative to existing proprietary systems such as Microsoft's Windows NT. Java is a network-based operating system that allows a Web browser to download small applications from the server to the desktop, which then run locally.

CHRONOLOGY: Key Dates for Sun Microsystems Inc.

1982:: Sun Microsystems is founded
1984:: Sun develops Network File System, which allows users to share data on a network regardless of processor type
1986:: Sun goes public
1991:: Kodak sell its UNIX software unit, Interactive Systems, to Sun, expanding the product line to Intel-based UNIX systems
1992:: Sun becomes the first U.S. company to establish a significant presence in Moscow, Russia
1997:: Sun purchases Diba Inc.

Sun's commitment to the Internet and intranet has placed the company in the forefront of a new marketplace with significant opportunities ahead. Some analysts believe Java has the potential to become the primary operating system of personal communications devices. Marc Andreessen, senior vice president and cofounder of Netscape Communications Corporation, said, "Java has created the greatest amount of entrepreneurial activity in 15 years." As a result, Netscape now views Sun Microsystems Inc. as a leader in one of the strongest market segments in the computer industry.

PRODUCTS

A new product cycle at Sun drove revenue growth for the balance of fiscal 1997, which ended June 30, 1997. Sun has new product strength with its UltraSPARC and SPARC II. The company was scheduled to implement the speedier UltraSPARC II processor during fiscal 1998. Additionally, the company's fast-growing line of software products for the Internet includes a broad set of solutions spanning Internet access, security, and publishing for the World Wide Web. Web NFS, Sun's newest NFS technology, provides a rapid file-access standard on the Internet. For enterprises, Sun offers its new Ultra Enterprise Server family. Furthermore, Sun has recently expanded its server line by acquiring Cray Business Systems' 6400 SPARC product line along with the SPARC/Solaris fault-tolerant line of Integrated Micro Products. Additional products include SPARC processors code-named Cheetah and Millenium. These processors, which are Sun's response to Intel (INTC-134) and Hewlett-Packard's (HWP-51) Merced (64-bit), are scheduled to be introduced in 1999.

SUN'S SONS?: SUN MICROSYSTEMS' PRIMARY OPERATING BUSINESSES

Sun Microsystems Computer Company (SMCC) is responsible for designing, manufacturing, and selling workstations and servers incorporating the Scaleable Processor Architecture (SPARC) for open network computing environments.
SunService Division is a leading UNIX service organization. SunService provides a wide-range of global services for heterogeneous network computing environments, including system support, education, information technology consulting, system integration, and system network management.
SunSoft Inc. develops, markets, supplies, and supports Solaris, a leading UNIX operating system software environment that supports SPARC and other volume platforms; Solstice, a complete enterprise-wide network-management solution; and Workshop, visual-development tools to easily create multi-platform applications for the Internet. SunSoft also offers software products for network management and PC desktop integration.
Sun Microelectronics (SME) designs and develops high-performance SPARC microprocessors, as well as enabling technologies for SMCC and third-party customers.
SunExpress Inc. is Sun's after-market services company. It offers easy ordering and prompt delivery of accessories, spare parts, options, software, and third-party products to Sun's installed base and other customers.
JavaSoft is Sun's newest business. It develops, markets, and supports Java software technology and Java-based products. JavaSoft also develops applications, tools, and systems platforms to further enhance Java as a programming standard for complex networks such as the Internet and corporate intranets.

CORPORATE CITIZENSHIP

In addition to offering educational programs, Sun donates a variety of products for other worthwhile purposes. For example, on June 18, 1997, Sun Microsystems Federal Inc., a division of Sun, donated a server that could accommodate growth across the World Wide Web to the National Center for Missing and Exploited Children. Sun has sponsored sports-related events such as World Cup Soccer 94, Russian hockey, America's Cup yacht racing, and Formula-1 auto racing. Sun's cultural enrichment programs support the development of future generations of global citizens and connect the company to the countries it serves. In Belgium, for example, Sun sponsored emerging musicians, giving them an opportunity to publicly showcase their talents. The company helps a variety of important causes by contributing money and equipment to charities worldwide. Lastly, Sun and its employees participate in community action programs ranging from food and clothing drives, blood drives, and disaster assistance to volunteering at local schools.

GLOBAL PRESENCE

A Global Fortune 500 company, Sun conducts business in approximately 150 countries, trains people in UNIX in 32 countries, and maintains research and development centers worldwide. The company has manufacturing facilities in California and Scotland, and distribution facilities in California, the Netherlands, and Japan. The company also assists both technical and commercial customers, supporting more than 500,000 systems in more than 150 countries. Sun's warranty and post-warranty services are provided from its more than 290 field offices and 25 solutions centers in the United States and overseas. These facilities handle more than 550,000 calls a year. Sun is one of the largest exporters of technology in North America.

Revenues from outside the United States, including those from end-users, resellers, and distributors, constituted approximately 51 percent of net revenues in fiscal 1997, 1996, 1995, and 1994. The company has approximately 100 sales and service offices in 41 foreign countries and independent distributors in about 150 countries. European revenues increased in 1997, with sales particularly strong in Germany, Switzerland, the United Kingdom, and France. Japanese revenues have declined in recent years due to current economic trends affecting the Japanese market. In the next few years Sun plans a major investment in its operations in southeast Asia, as well as in Bangladesh, India, and Sri Lanka. The investment will be used to create and build more local information technologies and balance in the region.

EMPLOYMENT

Sun has been referred to as one of America's "best managed companies." This is due in large part to the company's concern with its employees' level of satisfaction and the fact that it removes obstacles to employees' improved performance. To help meet the needs of its employees, Sun developed the "Employee Quality Index," a monthly survey sent to 3,500 randomly selected employees worldwide. Some of Sun's concerns include inadequate staff level, inadequate employee training, lack of input to key decisions, lack of teamwork, immediate supervisor support, and career opportunities at Sun. Since anonymity is ensured, the survey has a consistently high response rate. Sun believes achievement in quality must be a factor in compensation; therefore, Sun employees receive annual bonuses. The company also established an Employee Stock Purchase Plan to provide employees the opportunity to purchase common stock through payroll deductions.

SOURCES OF INFORMATION

Bibliography

"amsterdam cable operator selects sun servers for the new broadband internet service: amsterdam's a2000 to deploy scalable infrasture architecture from sun and mediaone." business wire, 16 june 1997. available at http://www.newsalert.com/free/story?storyld=cm6qbkbytawotc&fq=sunw.

fisher, lawrence m. "sun microsystems to buy diba, a startup."the new york times, 1 august 1997.

gruener, james. "sun hops aboard pci i/o bus: untrasparc ii systems to feature 33mhz, 66mhz implementations." pc week, 21 july 1997.

malik, o.p. "sun's winning storage strategy." forbes, july 1977.

"oracle, sun join forces to target workgroup market with oracle8(tm) database, sun's new workgroup servers." pr newswire, 19 august 1997. available at http://www.prnewswire.com.

"sun microsystems comes to the rescue in global effort to find missing children via the worldwide web." pr newswire, 18 june 1997. available at http://www.prnewswire.com.

"sun microsystems inc." hoover's online, 17 may 1998. available at http://www.hoovers.com.

sun microsystems inc. annual report. mountain view, ca: sun microsystems inc., june 1997.

"sun microsystems inc. home page," may 1998. available at http://www.sun.com.

"sun slashes prices, boosts performance across workstation product line." sun microsystems inc. press release, 5 may 1998. available at http://www.sun.com/smi/press/sunflash/9805/sunflash.980505.4.html.

"sun wins interior ministry project in thailand; sun servers will run thailand's national registration system." business wire, 16 june 1997. available at http://www.newsalert.com/free/story?storyld=cmbs6qbkbytaxmtu&fq=sunw.

For an annual report:

on the internet at: http://www.sun.com/corporateoverview/investor/ar/1997/index.htmlor write: investor relations dept., 2550 garcia ave., mountain view, ca 94043