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Sun Microsystems Launches New Line of Network Servers

Posted on: Sunday, 11 September 2005, 15:00 CDT

Sep. 12--Sun Microsystems will unveil today a line of lower-cost network servers that are key to the Santa Clara company's future.

At a news conference in New York, Sun will launch its much-anticipated servers, code-named Galaxy.

It represents Sun's most ambitious effort yet to gain a bigger share in the fastest-growing segment of the $49 billion-a-year server industry. The market for servers designed around standard x86 chips developed by Intel and Advanced Micro Devices is growing faster than the area Sun has long played in -- expensive servers designed around proprietary chips using a technology known as Reduced Instruction Set Computing (RISC).

"This was a market we had not truly addressed," said Andy Bechtolsheim, one of Sun's four co-founders, who is now chief architect and senior vice president of network systems at Sun. Bechtolsheim, who had designed Sun's first workstation in the 1980s, rejoined the company last year when Sun acquired his latest start-up company, Kealia. At Sun, Bechtolsheim has led a team of engineers who designed the new line of x86 Galaxy servers around AMD's newest dual-core Opteron processors.

Wall Street has been anxiously awaiting Sun's latest line of lower-cost servers, in hopes that an improved product line in the x86 server market will jump-start Sun's stagnant revenues. Since the end of August, Sun's stock has climbed about 10 percent in anticipation of the Galaxy launch, from $3.59 a share to close at $4 on Friday.

Sun is far from recovering from the sharp decline it suffered in revenues and earnings after reaching peak sales growth in the dot-com boom. Sun's high-performing but expensive servers once were favorites of many young, free-spending Internet companies. In the technology recession of the last several years, lower-cost servers that run the Linux operating system or Microsoft Windows began to surpass Sun's.

Last year, Sun made its first foray into the x86-based server market, with a line of servers using AMD's Opteron chips. It targeted Wall Street, a customer base that it was losing to lower-cost Linux boxes. Although Sun said it has gone from zero to No. 6 in the x86 sector of the server market with strong sales, they haven't yet helped turn the company around. In the fourth quarter ended June 30, Sun's revenues were down 4.3 percent to $2.97 billion, and the company barely posted a profit.

"They have received a lot of criticism for not having a strong x86 play before," said Jean Bozman, an analyst with IDC. "They are clearly making a statement here that they intend to be a player in this space."

Sun's new servers are about half the size of a typical pizza box-sized server that sits on a rack in a data center. Bechtolsheim and his team of engineers focused on creating a more compact unit that generated far less heat, with parts that could be easily swapped out without shutting any of the servers down.

The result is a line of servers designed around the lower-power-consuming Opteron chips. The price tag starts at $745 for a server with an AMD dual core Opteron chip running at 2 gigahertz. Prices range up to $11,235.

"Just using an industry standard processor does not signal changes to a business model," said Paul Miller, vice president for marketing at Hewlett-Packard's industry standard server business, the leader in the $17.5 billion x86 server business. Miller said that Sun's entry in the arena was "too little, too late."

Larry Singer, senior vice president, strategic insight officer at Sun, said HP was "shaking in its boots" about Sun's focused attempt to gain new customers in a new market.

"This is going to become a multibillion business for Sun," Singer said. "Wall Street is asking, why are you spending so much on R&D? This is why it matters."

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Source: San Jose Mercury News

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