Sun Microsystems, Inc

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SUN MICROSYSTEMS, INC.

Sun Microsystems, Inc. is a leading supplier of enterprise network computing products, including workstations, servers, software, microprocessors, and a full range of services and support. Through its software, hardware, and service offerings, the company is well positioned for the open, networked world of the Internet. Sun spent more than a decade working on the network capabilities of its servers, workstations, and operating systems. Its vision was captured by chairman and CEO Scott McNealy's trademarked statement, "The network is the computer."

As of 2001 the company had 40 percent of the high-end UNIX server market for systems costing more than $1 million. Sun's Solaris operating system is the industry's leading version of UNIX with more than 12,000 applications. UNIX was originally developed by AT&T in the 1960s and has undergone extensive refinements over time.

Throughout its history, Sun has resisted the Windows-Intel (Wintel) revolution. By focusing its efforts on optimizing Solaris for its UltraSparc RISC chips, Sun has been able to provide its customers with a continuous line of backward compatibility and scaleability. As a result, Sun's customers could start out small and then scale up their systems as they became larger enterprises.

Sun is also known as the creator of Java, the first universal software platform. The company introduced Java in 1995. Java technology allowed developers to write applications just once for use on any computer. The next year Sun licensed Java technology to all major hardware and software companies.

Sun competes primarily in the enterprise computing market. At first the company dominated the technical workstation market and led in unit shipments. More recently it has been focused on network-driven, UNIX-and Java-based system solutions for enterprise networks and electronic commerce.

HISTORY

The original Sun workstation was called the SPARCstation. It was designed by Andreas Bechtolsheim while he was a graduate student at Stanford University. Bechtolsheim's project captured the interest of two experienced computer engineers, Vinod Khosla and Scott McNealy. The three men, along with UNIX guru William Joy, formed Sun Microsystems, Inc. in 1982. In 1986 the company went public.

Sun achieved success in the 1980s by providing technical workstations principally to financial institutions and telecommunications companies. Its network file sharing (NFS) technology was introduced in 1984 and licensed free to the computer industry. In 1986 NFS technology for the personal computer brought network computing to PC users.

Sun's alliance with AT&T to develop a UNIX system for business computing began in 1987. Sun became the leader in the workstation market, with revenue reaching $1 billion in 1988, making Sun the fastest growing computer company with a direct sales force in history.

In the early 1990s the company began to address the wider commercial market of enterprise computing. It introduced two families of servers for networked enterprises in 1992 and 1993. In 1993 the company shipped its one millionth system and joined the Fortune 500. Sun's week-long Enterprise Computing Summit marked the coming of age of enterprise computing in 1994.

In 1995 Sun introduced Java, the first universal software platform. In 1996 Sun licensed Java to all major hardware and software companies. Java 2, the next generation of Java technology, was introduced in 1998. It delivered more speed and flexibility. In 1998 and 1999 Sun acquired several smaller companies that were developing Java applications, Internet connectivity, and software. Sun hoped that Java would become a universal Internet operating system and an alternative to proprietary operating systems such as Microsoft's Windows NT. Java technology running on Sun's network-based operating system allowed a Web browser to download small applications from the server to the desktop, where they would run locally.

In 1998 the Sun-Netscape alliance was formed when America Online acquired Netscape Communications. The Sun-Netscape alliance, which later became iPlanet E-Commerce Solutions, promoted Internet server software to start-up Internet companies. iPlanet products also made it easy for companies to make the transition to electronic commerce. The iPlanet Web Server was introduced at the beginning of 2000; it brought the former Netscape product upto-date with Java technology and could run on Linux and Windows NT as well as Solaris. In 2001 Sun announced that iPlanet would become a division of Sun in 2002.

In the late 1990s Sun expanded its software product line as part of its strategy to become an independent software vendor. It acquired application server vendor NetDynamics and network software developer I-Planet, Inc. in 1998 and Forte Software for $540 million in 1999. In 1999 Sun also acquired the Star Companies for $60 million and StarOffice GmbH for $14 million, primarily for their office productivity software.

Major acquisitions in 2000 included software developer Innosoft, which Sun acquired for $42 million. Sun planned to incorporate Innosoft's messaging and directory services technology into its iPlanet Directory Server 5.0, due February 2001. Sun acquired Trustbase, the United Kingdom-based parent company of JCP, for $21 million. Its secure public key infrastructure enabling technology was used in business-to-business e-commerce.

NEW INITIATIVES, 2000-2001

In March 2000 Sun announced its iForce initiative, a group of products and services designed especially for Internet start-up companies to help them get up and running quicker and more efficiently. More than 40 partners pledged their support of the iForce initiative. Sun planned to invest $300 million in its iForce partners, which included Oracle, Inktomi, and Open Market.

Sun's chief scientist and co-founder William Joy announced in early 2001 that Sun planned to develop a foundational technology for peer-to-peer (P2P) communications called Juxtapose, or Jxta. The company intended to provide a simple code layer that would enable other vendors to build applications using P2P technology that could interact with each other. In a networked enterprise computing environment, P2P technology offered the possibility of sharing information without storing it in a central repository. Instead, P2P technology employed a crawler that searched for information on the hard drives of all the networked computers in the enterprise.

PEER-TO-PEER TECHNOLOGY.

As part of its P2P initiative, Sun acquired InfraSearch, also known as Gonesilent.com. InfraSearch developed search technology for P2P communications and offered users real-time P2P information sharing. It appeared that Sun did not intend to join any other industry coalitions working on P2P technology. Research firm The Gartner Group projected that by 2003 some 30 percent of companies would have experimented with data-centered P2P applications for content distribution, and that by 2005 half of all current server-based content-management vendors would offer data-centered P2P technology.

STORAGE TECHNOLOGY.

In 1998 Sun redefined data storage for networked computers by introducing an intelligent storage network architecture that delivered reliability, expandability, and cross-platform information sharing. The company significantly expanded its presence in the open storage market with the 1997 acquisition of Encore Computer Corporation's storage business. By 2000 Sun had captured about 10 percent of the storage hardware market and was the fourth-largest supplier in that market. At the end of 2000 Sun announced it would acquire HighGround Systems, a key developer of storage management technology, for about $400 million. Much of HighGround's development strategy was based on the Windows NT operating system, although under Sun it was expected that HighGround would make its storage resource management software work on the Solaris operating system as well. The 2001 acquisition of LSC, a Minnesota-based producer of file systems and data storage software, for $74 million further strengthened Sun's presence in this market.

E-TRAINING.

Sun was also involved in online training through its Sun Educational Services division. In 2001 the company acquired Isopia, which developed E-learning software, for an undisclosed amount. Isopia's integrated learning-management system was a Java-based software package that managed and delivered course content over the Web. Businesses were expected to spend more than $23 billion on online training by 2004.

STRONG REVENUE GROWTH, 2000-2001

Sun enjoyed exceptionally strong revenue and income growth in its fiscal 2000, ending June 30. Overall revenue grew from $11.73 billion in fiscal 1999 to $15.72 billion in fiscal 2000. Net income increased from $1.03 billion in fiscal 1999 to $1.85 billion in fiscal 2000. For its fourth quarter in fiscal 2000 Sun's quarterly revenue surpassed the $5 billion mark for the first time. Pointing to widespread customer acceptance of Sun's products and services, Scott McNealy noted that Sun was the "undisputed number one" open system server provider.

Sun extended its product line with the acquisition of Cobalt Networks, which made low-end server appliances that ran on Linux, an open-source operating system considered a competitor to Sun's Solaris system. The $2 billion acquisition in fiscal 2001 was one of Sun's largest, and its first involving Linux. Following the acquisition, Cobalt became the server appliance business unit of Sun's network service provider organization.

A cooling of the Internet economy as well as a general economic slowdown cut into Sun's revenue growth in fiscal 2001. While the company's revenue increased to $18.25 billion, its net income dropped to $1.45 billion. Still, McNealy reported that "we continued to take share from our principal competitors." Throughout fiscal 2001 Sun continued to improve its product quality, enhance its software business, and make numerous additions to its hardware line. In software the company made key developments in its iPlanet product line and Java technologies. It expanded solutions for managing open storage networks. Sun's Solaris 8 platform won several awards as the best mission-critical server operating system. New hardware introductions included the Sun Blade 1000 line of workstations, Netra servers, the Sun StorEdge T3 arrays, Sun Cobalt appliances, and the Sun Fire midrange servers. A new high-end Sun Fire enterprise server was scheduled for delivery in the first half of fiscal 2002, as were additional UltraSPARC III technology-based products. With its focus on supporting the Internet and intranets, Sun remained a premier supplier of e-commerce enabling hardware and software solutions.