Rojo

What a week... after a slew of investor and customer calls, I thought I'd jot down a few comments and reactions. As you know, we announced our Q2 results last Tuesday, along with an investment by KKR - preceded by Monday's announcement with Intel. So we've been pretty busy - and lest some of the questions I've heard go unanswered, here's a quick overview.

1. What did you think about the quarter?
As I said yesterday, I'm satisfied with the team's performance. Now, what I said to folks internally was that I was "freaking over the moon with our progress," but our investor relations team said the financial community might have a hard time parsing that (PR said my Mum might be upset, as well), so we scaled it back to a more dignified, "I'm satisfied with the team's performance."

Honestly, it was a good quarter, we over achieved many of our internal objectives, and the strategic announcements drove a ton of awareness and momentum. Which are now rippling across the globe. If I haven't recommended it before, I'll do so now - the Tipping Point is a good airplane read.

2. Now, what's up with KKR?
For those that don't know who KKR are, they're a (very) large private investor, one of the smartest and most successful in the history of investing. They're less well known outside of financial circles, but their track record is one notch above stellar.

3. Why did you want them investing in Sun?
First, their investment is a big endorsement - they clearly see our potential. Second, we wanted their wisdom, perspective, access to their portfolio companies, engagement from some incredibly smart people - frankly, we didn't see a downside. And in terms of the financial transaction, here's a crude summary: (and as a caveat, this is a crude summary - if you want the exact details, please refer to this filing with our friends at the SEC.)

They loan us money at an extremely low interest rate, in exchange for the right to buy our shares if they rise above 25% of their original price. It's called "a convertible."

4. Do you need the money?
Heavens, no. With more than $4 billion in cash prior to the deal, one of the strongest balance sheets of any technology company, we didn't need the money.

5. If you didn't need the money, why are you raising it?
Because you raise money when it's cheap, and when you don't need it. Trust me, I've raised money when I needed it, I'm not doing that again. We have one of the strongest balance sheets on the planet, with $4.8b in cash and marketable debt securities prior to the deal. That opens a world of opportunity.

6. Are you going private?
No.

7. Are you going on an acquisition binge?
We're interested in growing the value of Sun. I'm neutral on how we achieve the best returns - organically or inorganically. But growth and volume = operating leverage.

8. Are they a hostile investor?
Absolutely not, I and the board want them involved - they're incredibly good at what they do, which is generate value for shareholders. To make that point clear to everyone, they signed a standstill agreement agreeing not to purchase more than a small amount of the company.

9. Aren't they just a short term investor?
Try this on for size - KKR's average holding period for the companies in which they invest is seven years. Seven. As the CEO of any other public company will tell you, they'd love it if *every* investor behaved like KKR. Other than Scott, I'm not sure we've had any other significant investor hold for that period of time. What drives CEO's and CFO's nuts are folks who hold the stock for 7 minutes. As one of the most highly traded stocks on Wall Street, we have a lot of those types of investors. So it's good to have stability in the investor base.

10. What other value do they bring?
First, as noted above, they have a portfolio of companies in which they're significant investors - take a look at the list, and tell me if having an introduction from KKR might be helpful. Second, we invited (yes, invited - early on, we said it was a precondition of their involvement) one of their members to join our board - stay tuned on that. We're hoping that'll bring a ton of insight and expertise to the team.

And finally,

11. Is it true James Gosling threw a spontaneous celebration (known locally as a beer bust) in Menlo Park, CA last Friday?
I'm sorry, that's confidential information, and I can neither confirm nor deny the rumor. But if we had, it would've been the first in... well, years. Such festivities might even ripple (in their appropriate cultural equivalent) across the globe.

 

Yes, we are making an announcement with Intel this morning, and no, you're not going to get the inside skinny here before we hold our press conference. But do be sure to tune in...  

By now you've read the press release, and you know that Sun and Intel are joining forces to drive Solaris, the NetBeans development environment, Java, and the Intel Xeon platform. You'll see ads that look like this in a few days:

The short form of the relationship is this - Intel has agreed to endorse and OEM from Sun the open source Solaris OS. Just stop there for a second. If you're an industry watcher, that's a pretty big change for the both of us. Intel has annointed Solaris as The Mission Critical Unix for Intel/Xeon. They're also endorsing, and we'll jointly be optimizing, the NetBeans and Java platforms, and working with us to fuel the communities from which they spawn. Again, if you're an insider, that's a big shift in the market - welcome to the community, Intel!

On the Sun side, we're agreeing to pair up our respective systems engineering teams to build a line of Xeon based systems - servers and workstations. These will augment our SPARC and AMD platforms, both of which have been growing double digits over the past year. We're broadening our offerings with Intel's Xeon, and certainly hoping to accelerate our overall growth - into our customers, and into Intel's. And not just in OS's or computers (don't forget, our view is that storage is coming our way, too).

Jointly, we'll build the market, work with ISV's and partners, and help support key customers - and invest our considerable resources to ensure mutual success. To be clear, this isn't about displacing one another's competitors, it's about getting as big a piece of the future as possible. The market's not shrinking, after all.

Perhaps the most interesting part of the relationship (at least for enterprises) is this: we're pairing up to do some collaborative engineering around larger systems (where larger implies greater than 4 socket - and no, I'm not talking about 5 socket). Optimized for Solaris and Java, of course, and leveraging one another's virtualization and performance technologies. Just to keep things interesting. Stay tuned on that front.

Which is all to say, just when you thought you'd had the industry all figured out, good things happen - and although the coverage in the mainstream media seems focused on our adding Intel chips to our product line, I'd like to believe the real news is that Intel has agreed to add the Solaris operating system to theirs.

But that's just me.

And to our new friends at Intel: congratulations! We're looking forward to working together! It's great to finally be on the same side of the market.

 

I sat down with my friend Mr. Scoble last week. If you want to know why the train accident to which I alluded in my last entry changed my life, watch here (that section's at around 35:00, the iPhone discussion is about 8 minutes in):

And before you send me the email, yes, I saw the entry written by Matt Mullenweg - and all I can say is... I'm really sorry, Matt. That's not the way Startup Essentials is supposed to work. We screwed up, and you're completely right to suggest if that's the norm, we should kiss goodbye our aspirations of reestablishing our business in the startup community.

If there's anything I can do to win a second chance, I'd like to know. I appreciate your first sentence.

 

Happy New Year everyone! My blog's been dark for a few weeks, what with closing out our December quarter, and spending some time with my family over the holiday (and enjoying all the various and sundry flu bugs going around San Francisco).

But while all that was happening, I was tagged by a couple folks - and asked to provide five facts about myself that most people don't know. Hey, I was asked, so here goes.

1. I once worked as a security guard in this museum:

As astonishing as that may sound, I was also the only security guard on duty. Thankfully, most visitors were from local elementary schools, not fugitives from Interpol's most wanted list.

2. I am one quarter (Asian) Indian, one quarter Welsh (on my Mother's side), one quarter Hungarian, and one quarter Russian (Father's side). I love being a mixed breed.

3. I was a passenger on a train that crashed outside of Chase, Maryland in 1987.

The accident had a profound impact on my life.

4. I love to cook (and eat) - a passion I share with Greg Papadopoulos, Sun's CTO (I just found out we happen to have the same oven).

5. I sincerely believe technology improves the world - from the solar panels on my home, to my choice of employer for the past 10 years, to the causes I believe we should all support, in and out of the holiday season.

There you have it.

And at the risk of being impolitic, given that Time Magazine thinks I am Person of the Year, let's run an experiment - I'll tag those whose content I always read, but who don't have blogs in a traditional sense. John Markoff, David Kirkpatrick and Ashlee Vance - for good measure, I'll add Chris Keene (an old friend I haven't seen in forever, but whose travels I tracked via his wonderful family blog), and Greg, because every time I share a meal with the guy, I learn something fascinating.

And again, Happy New Year - may yours be filled with all kinds of new insight.

(Update - thank you for catching the typo, Anjan... missed tagging Ashlee, who I'm sure will be thrilled to join in.)

 

Thanks for the creative comments. (The link from the graphic to the NetBeans download page was a distraction... I didn't want the test to be too easy.)

This is the picture I put in front of an investor group recently, along with a couple of OEM customers wanting to know how free and open source software helps us (and thus them).

Each pink dot represents a connected Solaris 10 user - not a downloader, but an individual or machine (independent of who made the server) that connects back to Sun's free update service for revisions and patches - applied to an individual machine, or a global datacenter. This doesn't yet account for anywhere near all Solaris 10 downloads, as most administrators still choose to manage their updates through legacy, non-connected tools. But it's directionally interesting - and shows the value of leveraging the internet to meet customers (new and old).

There's no way we could match this kind of global growth by sending out compact disks or sales reps - free software allowed interested developers/customers to identify themselves to us - rather than the other way around. And allows us to build vibrant relationships and communities across the globe - based on a free basic update service for individuals or small businesses, and higher value offerings for larger businesses. We are meeting new customers because Solaris no longer requires our hardware (or a human being to deliver it).

You can click around on the map in this mashup - customer information is obscured to protect privacy, and connections are localized to a city or zipcode only. The color of the dot relates to the number of unique users in that zipcode - the brighter the dot, the more customers connecting to Sun for updates.

For those wanting to know how our Wall Street initiatives are going - the area with the single highest density of connected Solaris users turns out to be New York City. Nearly every zipcode is brightly lit. It's great to see our success in Japan, Brazil, Australia, and all across Europe, as well.

What's disappointing in the data is how few downloads are connecting from India and China - both areas dense with great developer communities (eg, some of our most active NetBeans communities are in those countries). We have a few theories on why, most related to bandwidth and network quality of service (Solaris is, after all, many gigabytes to be downloaded) - both problems we can work around. Innovation like this really helps.

The northernmost download I could find was far north of Helsinki - for those that observe Christmas, rumor has it Santa Claus runs the entire North Pole CRM and distribution facilities on a large Solaris/PostgresSQL grid (running on recycled Dell boxes, curiously enough). He lets our update center handle all the patch management.

But I'd like to stress that's just a rumor at this point. We do not have Santa's permission for a customer reference.

That's still with his legal team.

 

Care to guess what the following represents (and yes, it relates to our business)?

 

I got to speak with David Brancaccio a few days ago - whose public television show NOW is definitely worth watching. If you're a long time listener of the US's National Public Radio, you'll recognize David's voice. To me, he'll always be the voice of the bubble - the business journalist who reported on the economy as the stock market went through the roof in the late 90's. Just hearing him speak puts me in a (cautiously) good mood...

The interview aired last night. For those interested in my views on the business motivations behind bridging the digital divide (and Vinod Khosla's views on a potential remedy to the global oil crisis), you can watch or listen here.

While you're there, please take the time to visit this page.

Last week was full of real news, too - we broadened our flagship Java developer tool, NetBeans, to better support web developers with its simplified Visual Development Pack. And although it's not earth shattering, the rumors are true: we're now shipping a power meter with our Try and Buy Niagara systems - folks didn't believe the power savings (even with PG&E; standing behind us), so we thought we'd simplify the analysis for potential customers.

The Postgres community also pushed a new version of their open source database out the door. I'm starting to see a major uptick in the commercial adoption of open source databases. Greenplum's a great example - a business intelligence/data warehousing solution based on Postgres, and general purpose infrastructure (Thumper and Solaris 10). See page 14 of this document for an interesting comparison of how those two products perform together against their peers.

I finally had a positive meeting with an investor related to our open source strategy (developers get it, investors have had a harder time). The key? I had the perfect picture with me - actually a mashup. Stay tuned, I'll show it here next week.

In the interim, I just saw this yesterday - great to see the OpenSolaris community making headlines (and congratulations, Anil!): (Click here if you can't see the video below.)

Finally, given the flood of emails my last post generated, along the lines of "did you read the comments about how hard it is to do business with Sun as a small company?" let me just say this: I and portions of my staff spent a good amount of time talking about those comments last week. And minimally, if you take a look at the new sun.com site, you'll see we are committed to improving the experience - for startups and titans, alike. We know we have work to do beyond the web site, and we will do so. (And to address one issue - given US export laws, and widely varying non-US commercial restrictions, there's unfortunately no way we can coordinate the availability of programs like Startup Essentials globally - we do try...)

So thank you for the comments. I do read them all.

 

I remember a particularly unpleasant conversation with a Sun executive about a year ago. The introduction of our "eco-responsible" Niagara systems had just blown up a $250,000 purchase order from a big customer, replaced by a $25,000 Niagara (sorry, T2000) order. "You're killing me," he said, "are we trying to shrink or grow this place?"

What followed were some choice words about headquarters being out of touch with the field, not understanding real world challenges, pricing going in the wrong direction, etc. And frankly, pricing Niagara was a big bet - putting a price on innovation is an art, not a science. And lest you ask... yes, we're trying to grow, not shrink.

But there's an interesting phenomenon in the computer marketplace, which strikes some as counterintuitive: if you double the performance of a machine, customers don't buy half as many, they tend to double their order. Same goes for utilization, if you can double server utilization via Solaris containers or VMWare, people don't buy fewer computers - they buy more. The value of innovation, at least to our core customers, is growing so fast that if the price declines, the overall return (value/price) goes through the roof - encouraging a feedback loop. Moore's Law and free software drive relative pricing down, and customers accelerate their growth.

So I had two pieces of advice for the unhappy executive, 1) I'm sorry to hear about the order (executives are people, too), 2) please make sure your teams are selling into our competition's installed base, not just our own, and 3) trust the market will grow.

Since then, our Niagara systems have ramped from $0 to more than $100M per quarter in only two solid quarters of shipment - while our overall (multi-billion dollar) systems business has grown by double digits (while many of our peers have shrunk). The growth of Solaris 10 on HP, Dell and IBM certainly drive awareness for our innovation, but pricing's been working in our favor, too. Even our trusty friends in the analyst community have taken note of our consistent share gains.

And although I'm thrilled to see our share gains, I'm worried our growth masks a trouble spot - among customers that don't buy $250,000 at a time, but more like $2,500 - startups and small companies. Granted, we are making headway with a few very cool startups, but there are too many signs that all's not well in a market that daily redefines the network. Do I have data? Not perfect data, but certainly anecdotal evidence. As an example...

Recently, we held an "unconference" for startups in the Silicon Valley area - an unconference is one in which the agenda is defined by its attendees, after they arrive (sounds strange, but it totally works.) We had solid, even overflow attendance at this event.

Nearly all of the feedback was positive. Nearly. But there was a troubling, and consistent message. It usually went like this, "wow, this is a great idea... thank you, Sun. But hey, why are you guys here? I thought you built big expensive stuff that ran in banks?"

Ouch.

It was a message delivered with sufficient frequency that we've started to really focus on acquiring new customers - and no, not just banks and telcos, but new companies. The startup community, a traditional stronghold for Sun.

So if you are a startup, or you know someone who is, please send them the following.

We are committed not only to growing in today's Fortune 500, but tomorrow's, too. And as you know, all our software is free for the asking (you pay only for commercial support, when you want it). From Java to Solaris to NetBeans, to everything in between - it's all free for the asking.

But we can't just give hardware away for free (at least permanently). And we know you're price sensitive - so we're going to drive prices into the ground to lower the cost of using Sun's newest innovations. As of now, that's exactly what we've done. If you're a US business that's been in business less than 4 years, and you employ fewer than 150 people, you'll find this blog posting very interesting. Just go look at what Thumper will cost vs. any of our storage competitors (by our calculations, we're about half the price). Just click here to apply for the program.

And yes, we are in the midst of globalizing this program as we speak - "younger than 4, fewer than 150" isn't a global definition for a startup (that's known as a midsize business in some places).

Why are we doing this, even though we're showing great growth?

Because growth in our installed base is nice. Growth in the competition's installed base is better.

But growth in tomorrow's installed base is best of all. And by definition, every large customer Sun serves today started as a small customer.

Remember, just click here.

 

A rising tide lifts all boats. If there were ever a philosophy that guided our decision making at Sun, it's that - the notion that an internet connected by freely available standards is more valuable, to Sun and our customers, than one defined by dependencies on proprietary technologies. Although the metaphor doesn't translate particularly well (I know, I've tortured translators around the world), the concept is familiar to nearly everyone, no matter the industry or geography.

History is replete with examples of failed efforts to defeat standardization. My personal favorite is Thomas Edison's attempt to patent the lightbulb, so he could threaten litigation against anyone using an "infringing" non-Edison client bulb attached to his servers generators. And there are just as many success stories for broadly adopted standards, from shipping containers to power grids, air traffic control to the Java platform itself.

Few folks, at least outside of Sun, understand how pervasively successful the Java platform, and the community supporting it, have been over the past decade. But Java runs on more devices than Microsoft Windows, Linux, Solaris, Symbian and the Mac combined. Nearly 4 billion devices at this point, from smart cards to consumer devices, DVD players to set top boxes, medical equipment, all the way up into the majority of the world's transactional systems and 8 out of every 10 cellphones sold. The Java platform is, already, a global standard.

The source code has been available for years. And we have a robust, multi-party community that defines the standard, driven by more than 1,000 contributors, from Google to Oracle, Motorola to Nokia, Apple to Apache, Red Hat, Samsung, Sony, SouJava - if they matter to the internet, they belong to the Java Community (with one exception, despite our frequent invitation). Millions of developers and customers benefit every day.

But over the past few years, our success has felt increasingly incomplete.

There was an obvious division growing between those that believed in free software, also known as the open source community, and those that believed in open standards. And it felt like we at Sun were straddling a few too many fences - Solaris has become one of the most popular projects in the open source community, along with Glassfish (our open source Java EE application server), NetBeans (our development environment), and another one of my favorites, Project Looking Glass (an inspiration for many). But the Java platform itself was never listed in that lineup - because its license was more restrictive, designed to enforce community compatibility above individual freedom. (Our motives were pure, but we'd been burned in the past.)

But a rising tide lifts all boats. And now that Java's established itself beyond a doubt, it's time to take the next step, to utterly obliterate the barriers to entry for developers around the world seeking to build the next great device, or the next great internet service. Whether in the US, Brazil, Poland, China, Tibet, Taiwan, Europe, Mexico - where ever the internet travels (to more places, at this point, than even electricity).

And by now, you've seen that's exactly what we've done. We've followed through on our promise to join hands with the free software community, and have chosen the Free Software Foundation's General Public License (known as "the GPL") as the governing license for the evolution of the Java platform. (Crow and hats available for those needing a snack :-)

The GPL is the same license used to manage the evolution of GNU/Linux - in choosing the GPL, we've opened the door to comingling the communities, and the code itself. (And yes, we picked GPL version 2 - version 3 isn't available, but we like where the FSF is headed.)

Picking a license was a very complex task - we took an enormous breadth of issues to heart in making the selection, from protecting our customers and licensees, to continuing to foster a wildly successful developer community. We had to worry about device manufacturers, media standards, big enterprise systems, government and military deployments - remember, more businesses and devices leverage Java than any other development platform. This was no simple feat.

So to the legal team at Sun, and our friends at the Free Software Foundation - I would like to offer my heartfelt thanks. We could not have gotten here without you. If Shakespeare had understood intellectual property, he never would have said all those mean things.

And in closing, I want to put one nagging item to rest.

By admitting that one of the strongest motivations to select the GPL was the announcement made last week by Novell and Microsoft, suggesting that free and open source software wasn't safe unless a royalty was being paid. As an executive from one of those companies said, "free has to have a price."

That's nonsense.

Free software can be free of royalties, and free of impediments to broadscale, global adoption and deployment. Witness what we've done with Solaris, and now, what we've done with Java. Developers are free to pick up the code, and create derivatives. Without royalty or obligation.

Those that say open source software can't be safe for customers - or that commercially indemnified software can't foster community - are merely advancing their own agenda. Without any basis in fact.

They're also fighting a rising tide.

 

At an interview last week with John Markoff, I made a statement that seems to have generated some concern over my sanity. I said, "I don't believe in thin clients."

Let me start by saying I started my technology career with a company that built client (ie, desktop) software. I care a lot about user experience. And for that reason, I've always thought the words thin client were oxymoronic. No two words have ever been less comfortable sitting next to one another - one cannot have a client without at least some functionality or 'state' on a device, and the girth of that state (as measured by memory or storage or application footprint) directly correlates to the interactivity of the client.

In simple terms, TV's got more interesting when they sprouted set top boxes. Radio got more interesting when iPods came along. And cell phones blossomed when you could download games and ringtones to their resident Java platforms. (Cache is king - although it can be stolen (think laptop), but I'll leave that cryptically hanging for another blog).

Industry convention says that apps written to browsers are defined to be "thin." But by that definition, thin really equates to "using someone else's runtime environment" - in that the browser itself has to be present for the service to be rendered. And last I checked, browsers require operating systems and windowing environments. Not exactly thin. So in my book, it's inaccurate to say Google or YouTube are "thin clients" - they're services that leverage someone else's thick client. A browser.

With this heresy behind me, I'm also (less controversially) of the belief that the most interesting consumer innovations are those we experience with our eyes - through compelling clients. And until recently, very few companies were investing in client software or hardware - sure, there were lots of browser apps, but that's what they were.

But that's changing. Innovation on clients is back - we see it in a flurry of Web 2.0 companies investing in creative desktop interaction and the resurgence of JavaScript, in the myriad toolbars the big portals are driving into the world, and more interestingly, in an ever broadening array of new devices showing up in the hands of teenagers, on automobile dashboards, in our living rooms, basically everywhere. None of these are thin - at least in my definition. They all, however, leverage the network. And that's the big innovation - it's no longer just a browser presenting the network to users. Its standalone client applications and devices.

But why the renewed energy around clients? This was venture capital no man's land a few years back, but no more.

First, the strategic reason - relying on someone else's browser is a precarious choice. Especially when the distributor of the browser can use it to compete against you (type "news" into Microsoft Vista's browser, and you don't go to news.com, you go to MSN News...). That's driving a lot of companies to validate their services against Firefox, Opera and the Java platform - and as interestingly, it's driving companies to rewrite their apps to be standalone network clients, like iTunes, or the NetBeans developer tool. Standalone network clients, hardware or software, avoid the threat of disintermediation from unfriendly runtime environments.

Secondly, users don't like to wait. Which from my pedestrian vantage point is the fundamental motivation behind "Web 2.0" - resident functionality, whether Google Earth or NASCAR's PitCommand, is more satisfying than visiting a web site that tries to load great heaping volumes of JavaScript into a browser every time a user appears (or more frustratingly, reappears). Patience isn't a virtue when it comes to computing - out of site, out of mind (pun intended). Make the user wait, they'll go elsewhere - provide a persistent executable, one that lingers between usage - or attaches to your belt loop - you're more likely to keep the customer.

Lastly - the network has finally become pervasive. You can get a signal nearly (I did say nearly) everywhere - but as we move from a world of relatively reliable landline networks, to one in which we share services with mobile and wireless networks, the latter's spottier reliability is becoming more pervasive. And for a network service to retain its utility, it's got to do more than fail to appear when invoked off the net. Which implies an interactive client that persists, or hangs around, even when the network disappears for a moment. That's why your in-car navigation system works, even if the update feature is disabled.

Now again, I am at my core someone who cares about clients - and user experience. Servers without clients are called space heaters - so it's good to see innovation returning to clients, especially network clients. It's been bottled up in the traditional definition of thin for too long. And although I don't believe in thin (except for one very pure, very low power, unthievable interpretation), I'm a huge believer in the network. And all devices that attach to the network (just go to CES next year, you'll be awed).

So with that as a preamble, allow me to congratulate the Java community on having voted to approve a new Java platform, Java Standard Edition 6 - whose arrival yesterday via the Java Community Process heralds the single biggest improvement in the Java platform in years. And a vast improvement in user experience. Vast.

With Java now powering more than four billion devices (ahem, network clients), the question we now face is how do we approach the next few billion. And without giving away the answer to that question, I'll leave you with one of my favorite quips:

Different isn't always better.

But better's always different.

 

I did an interview last evening with John Markoff, of pretexting fame, at the Churchill Club (a Silicon Valley community gathering). I'll point to the links as soon as they're up - I tried to hijack the interview to reverse roles, so I could interview John on what it was like to be snooped on (his response, "it wasn't the first time").

We talked about a variety of topics - from leadership and politics, to the changing open source landscape. On the latter, from where I sit, we're seeing an increasing schism in the market, separating those that protect their customers at the expense of the open source community, from those that protect the community while leaving customers vulnerable. Our view is you have to respect both, and that we've effectively threaded the needle with both OpenSolaris and OpenSPARC, and Sun's commercial derivatives of both - and that those best practices will guide our approach going forward. If you want proof, stay tuned for next week's announcements. (It won't be a boring week.)

John and I also spent some time talking about corporate transparency and shareholder communities (I'd just presented, that morning, to a group of Sun shareholders at Sun's Annual Shareholder meeting, links and audiocast here (and yes, to the commenter who suggested we need to refresh our file formats for technology neutrality, you're quite right, stay tuned).

As I've said before, transparency and efficiency are obligations as much as opportunities - a better informed investor can make better decisions, just like a better informed customer or developer.

 

We just reported our earnings for Q1. The way this works (for those that don't already know), we issue a press release to the news agencies after the markets close, then Mike Lehman (our Chief Financial Officer) and I host a conference call to provide color and context. Financial and other analysts from around the marketplace dial in, our VP of Investor Relations walks through the financials, then Mike I provide some overall context before opening up the line for questions.

Here's a page with links to the presentation materials, and the audio transcript. The whole process is a tad anachronistic.

It was a busy week overall - in addition to presenting our financial report card for Q1, I was the keynote just prior to Larry Ellison at Oracle Open World. You can see (and watch) that presentation, here. (You might need to scroll down to the middle of the page... and if I look particularly pale, I wasn't feeling great - to any other parents of small children, you'll understand the source of my malaise in three simple words, "Back to School.")

On another topic, if you're looking for Sun's opinion on Oracle's decision to fork Red Hat, here are some comments Greg Papadopoulos (Sun's Chief Technologist, you can tell by the way his hair behaves) and I made during a regularly scheduled interview with Hal Stern. Hal, an inveterate bloggeur himself, leads Sun's field Systems Engineering community (the technical folks closest to our customers, otherwise known as "the system in Sun Microsystems.").

(Update: For those whose news readers don't show the video images in-line, see Video 1 and Video 2 directly at YouTube.)

If you want the quick summary of the videos, not that it'll surprise anyone, it comes down to this: I'm really glad we invested so heavily in Solaris over the past five years, making it freely available, making it open source, and making it available on HP, Dell and IBM, not simply Sun.

Adoption matters.

 

We seem to have struck a chord with the unveiling of Project Blackbox last week. And given some of the early reactions, I thought I'd answer a few of the questions that have surfaced, then point everyone to a video Dave Douglas, the VP in charge of the program put together to talk about our motivations/priorities. First, the questions...

Q: Why'd you paint the prototype Blackbox black - won't that absorb more radiant solar heat and worsen cooling challenges?
A: Sorry to disappoint, but we painted it black because it looked cool for the launch event, that's all. Customers can paint them whatever color they want (or leave them unpainted).

Q: But someone could steal a container in a parking lot.
A: Of course they could. They could also steal the Mona Lisa if it was left in an unguarded parking lot. So don't leave a million dollar datacenter in an unguarded parking lot. Put it in a guarded basement or warehouse, or bolt it to a concrete pad or rooftop, and you won't have that problem - and although we expect most datacenters to be operated inside a building, the locking apparatus on a shipping container is more secure than most office parks.

Additionally, a Project Blackbox container does have multiple levels of security built in, from tamper, motion and GPS sensors, to a simple hookup for easy integration into existing building security systems. But nothing compares to basic perimeter security.

And for the most part, the customers who need offshore supercomputing or datacenters in remote locations aren't worried about someone casually picking up an unmarked 20,000 lb. container and driving off with it.

Q: But containers get knocked around and ripped open, how will Blackbox handle that abuse?
A: The same way a container full of china or crystal would - by ensuring high service levels during transport. Not everything is transported in the same way as a container full of concrete rubble. Remember, we ship containers full of computing equipment already, that's one way material gets from Asia to deployments around the world.

Q: But how would I service the components someplace like a roof?
A: Just as you service your power generator or cooling plants, today - by taking the elevator, and walking on to the roof. But our experience shows the next generation of network service deployments have come close to eliminating the need for on-site operators. If that's not how your application infrastructure has evolved, you probably wouldn't want this on your roof.

Q: My company only runs end of life HP PA-RISC and Tandem machines, can I use Blackbox anyways?
A: No - at least not yet. Blackbox isn't for repackaging end of life datacenters, it's to provide scalable infrastructure for next generation deployments.

Q: What OS's will it run?
A: Anything that runs on Sun's industry standard Niagara or x64 platforms - Solaris, Linux, BSD and Windows, to start. (And no, you don't have to be a Java shop.)

Q: Will you run your competitor's hardware?
A: In time, yes, but our competitors will need to adapt their product lines for high efficiency cooling. Most don't take it as seriously as we did with this project.

Q: Who would need one of these in a disaster area?
A: We didn't mean to fixate on this, but we saw the impact SunRay technology had on the relief efforts in New Orleans during hurricane Katrina. What the relief agencies needed were thousands of zero maintenance network clients to process victims and deliver aid services - with very rapid time to deployment in very poor power/environmental conditions. We solved the problem with centralized network infrastructure, not with laptops, and it worked beautifully.

And before you ask, if the relief workers or insurance agents needed to do video editing or 3-D CAD modeling, SunRay's would've been a very poor fit - they would've been better off with high end PC's. But that wasn't what they were trying to do - SunRay's don't replace PC's any more than your Blackberry does.

Q: What's been the customer response?
A: Equal measures of a) nervous laughter, b) incredulity, c) profound curiosity and a recognition that we're working on the right problems for the future of datacenters. And we have an enviably beefy pipeline of customers and integrators wanting to talk to us, which is the right starting point. Remember, we're not planning on commercial/revenue shipment until 2007.

And finally,

Q: Does this replace every datacenter on earth - are they going to shut down now that Blackbox exists?
A: Absolutely not. Blackbox serves a segment of the marketplace, those customers focused on rapidly scaling out next generation infrastructure, or looking for alternatives to today's deployment options. We don't expect everyone to run out and shut down their datacenters - we do expect a great many of our customers and prospects to think seriously about how they'd rather spend $250,000,000 and two years. Again, not for everyone. Just like the internet when it began :)

Over to you, Dave... (UPDATE: the embedded YouTube video doesn't seem to show up in some newsreaders, so click here to view it on YouTube's site.)

 

As I've been saying for a while, our customers - more specifically, a segment* of our customers - face a diversity of tough challenges. What does the CIO in midtown Manhattan do when she runs out of roof space or power? How does an aid agency deliver basic connectivity to 5,000 relief workers in a tsunami stricken metropolis? What does an oil company do when they want to move high performance analytics onto an offshore platform or supertanker? Or a large web services company do when they want to cookie cutter their infrastructure next to a hyrdroelectric plant for cheap power - within weeks, not years?

None of these are easy problems to solve - especially one computer at a time. They're more commonplace than you'd think across the globe. And now you know the motivation behind our asking a simple question, "what would the perfect datacenter look like?"

Improving upon its father, the traditional datacenter, it'd have to be more space and power efficient. Very high performance, and designed for machines, not people with plush offices. It'd have to be available within weeks, not years. And portable, to allow customers to deploy it anywhere - in a disaster area, or next to a hydro generator.

But let's start with the most basic question. How big would it be?

In the world of vertically scaled, or symmetric multi-processing systems, pools of CPU's share access to a common set of memory. But the size of a given system has a physical and logical limitation: it can be no bigger than the private network used to connect all the disparate internal elements.

But the future of the web is clearly moving toward horizontal or grid computing. In a grid, a conventional network is used to connect collections of smaller*, general purpose elements (like Sun's Niagara or Galaxy systems). The question of "what's the biggest grid?" has no obvious answer - they can be as big as you want. Just as at TACC, where they're building the largest supercomputer on the planet out of general purpose elements.

So a while back, we asked a few talented systems engineers a simple question: is there an optimum size for a horizontally scaled system? Interestingly enough, the answer wasn't rooted in the Solaris scheduler or a PhD thesis. It was rooted in the environmental realities faced by the customers I cite in the second paragraph. And perhaps more interestingly, in your local shipyard.

Shipyard?

The biggest thing we could build would ultimately be the biggest thing we could transport around the world - which turned out to be a standardized shipping container. Why? Because the world's transportation infrastructure has been optimized for doing exactly this - moving packets containers on rails, roads and at sea. Sure, we could move things that were bigger (see image), but that wasn't exactly a general purpose system.

So the question at hand became, "how big a computer can you build inside a shipping container?" And that's where the systems engineering started.

First, why are servers oriented in racks and cooled by fans front to back? To maximize convenience for humans needing to interact with systems. But if you want to run a "fail in place" datacenter, human interaction is the last thing you want. So we turned the rack 90 degrees, and created a vastly more efficient airflow across multiple racks. And why not partially cool with water in addition to air - if you burn your hand, do you wave it in the air, or dunk it in a bowl of ice water? The latter, water's a vastly more efficient chiller.

A non-trivial portion of an average datacenter's operating expense is the power required to chill arbitrarily spaced, very hot computing platforms - vector the air, augment with a water chiller, and cooling expense plummets. As does your impact on the environment. Did I mention the eco in eco-responsible stands for economics? For many companies, power is second only to payroll in datacenter expenses. (Yes, the power bill is that big.)

And that's how we started to go after power efficiency.

Second, if you can generate power for less than the power company charges you, why not do so - put a generator next to the chiller in a sister container, and you've got access to nearly limitless cheap power. (Heck, you could run it on bio-diesel.)

And if power rates or workload requirements change and you want to relocate your container - good news, the world's transportation infrastructure is at your disposal. Trains, trucks, ships, even heavy lift helicopters. You can place them on offshore oil rigs. In disaster areas. In remote locations without infrastructure. To wherever they're most needed.

Finally, in most datacenters I vist, I see more floor tiles than computers. Why? Because operators run out of power capacity long before they fill up their datacenters - leading them to waste a tremendous amount of very expensive real estate with racks spaced far apart. In a container, we go in the opposite direction - with plenty of power and chilling, we jam systems to a multiple of the density level and really scrimp on space. And it can run anywhere, in the basement, the parking garage, or on a rooftop. Where utilities, not people, belong.

With a ton of progress behind us, and enough customer interaction to know we're on to something, that's why we've unveiled our alpha unit, and gone public with the direction. We've done a lot of detail work, as well, working to integrate the container's security systems into enterprise security systems. It knows where it is via GPS (you can locate them via Google Maps, if that's your bent). Sensors know if the container's been opened or moved. We've even done basic drop tests (one, accidentally) to deal with transportation hazards (the racks inside can handle an 8g impact!). And we've explored camouflage options, too (you really don't want a big Sun logo screaming "steal me, I'm full of RAM!" on customer units).

Every customer we've disclosed has had a different set of concerns or challenges. None in my mind are insurmountable. But we don't have all the answers, of course, that's why we'll be working with key partners and integrators (one customer wanted the container to detonate if it was breached - er... perfectly doable, just not something Sun would do).

At a top level, we know there is no one hammer for all nails.

But in this instance, there might be one blackbox for all of network computing.

Specs and details to come - and in the interim, here are some great photos and usage scenarios (I especially like the Mars Rover companion - that was Greg's idea).

____________________________________

* more on this later.

 

For those that have been leaving comments, I first want to say I appreciate your time and energy. I read them all (both gruff and gracious).

But let me try to clarify a simple point.

I was talking to the CIO of a large financial institution last week. He told me he was in the midst of building out two new datacenters, spending $250,000,000 (yes, a quarter of a billon) on one, more than that on the other. He was beyond frustrated (as I'm sure was his CFO).

I asked him how long it was going to take, he said nearly three years. Years.

And then Dave Douglas reminded me that two to three years is longer than it took for YouTube to incorporate, build out their infrastructure, scale their business to serve the entire planet - and get sold.

So if time to market matters - in responding to market opportunity or a natural disaster - surely something's got to change. It's not as though datacenter's are at any risk of disappearing - like I said, there has to be a place to put network infrastructure - but no one could deny it's time for a tectonic shift in how we think about the problem.

 

An executive from a mobile phone company recently told me the feature most requested by buyers in their fastest growing geography (India) was an LED flashlight. Not a camera, but a flashlight. Edison would never have guessed (obviously). Nor that electricity would one day be on airplanes, lunar landers or deep sea submarines.

Nor would we have imagined that network connectivity and computation would end up on drill bits. Or on ocean going supertankers. And that's exactly what I was told last week by the CTO of a global energy company. They use sensors on spinning drill bits to extract seismic data, which then guides the bits as they descend into the earth (I had no idea you could actually steer a drill bit). And they do this on offshore drilling platforms. And after they pump crude into supertankers, they use data from sensors spread throughout the ships to monitor vibration, fluid dynamics and rotational physics - to keep the ships, and their precious sloshing cargo, moving safely in the right direction.

I was similarly surprised to hear a global relief agency describe the IT challenges of managing a disaster - starting with a need to supply computing capacity to remote disaster locations without power. More painfully, without desktop system administrators.

And then there's what Disney's up to, passing out trackable stuffed dolls to kids in their theme parks, so parents can follow them (as Scott would say, "that's not Big Brother, that's Dad..."). By tracking clusters of dolls, the operator can tell parents how long the lines are for a ride, and determine where to place concession stands (in front of waiting patrons, of course). And there's the wave of DVD players and consumer electronics all becoming network computers - check out the logo on the far right of Panasonic's new DVD player...

All of the above are examples of putting computing closest to the source of value - and responding in near real time to a changing physical world. No one projected those applications 50 years ago.

So where's it all headed?

As usual, Greg has some really good thoughts about the biggest issues. But among the most interesting questions of where is computing headed relates to the value of the one place we all thought to be the perfect location for computing: the datacenter.

Now I understand that IT infrastructure has to be put somewhere. But the whole concept of a datacenter is a bit of an anachronism. We certainly don't put power generators in precious city center real estate, or put them on pristine raised flooring with luxuriant environmentals, or surround them with glass and dramatic lighting to host tours for customers. (But now you know why we put 5 foot logos on the sides of our machines.)

Where do we put power generators? In the engine room. In the basement. Or on the roof. And we don't host tours (at least in the developed world).

The original intent of the datacenter was to accomodate not computer equipment, but the people who managed it. Operators who needed to mount tapes, sweep chad, feed cards, and physically intervene when things went wrong. Swap a failed board or disk drive, or reboot a system.

Therein lies an interesting quandary - at least from our internal analysis, the availability of IT infrastructure is inversely correlated to foot traffic. The more people allowed in a datacenter, the more likely they are to kick a cord out of the wall, break something trying to fix it, or just bump into things trying to add value.

As the best systems administrators will tell you, the most reliable services are built from infrastructure allowed to fail in place, with resilient systems architecture taking the place of hordes of eager datacenter operators. Instead of sweeping chad, they do periodic sweeps of dead components - or simply let them occupy space until the next facility is brought on-line. (Known as "failing over a datacenter.")

Very few operators involved, yielding very high service levels. (When there are nearly 1,000,000 people in the world who make their living off eBay, downtime goes well beyond an annoyance.)

Which again begs the question, where's computing headed? As highlighted by some of the scenarios above, into the real world, certainly.

Perhaps a more interesting question should be - why bother with datacenters at all? Surely it's time we all started revisiting some basic assumptions...

 

The collective IQ of San Francisco has risen this week, with the arrival of nearly 4,000 Sun "customer engineers" from across the globe. Customer engineers encompass a very broad community at Sun, one that includes systems and support engineers, product developers, and a diversity of other technical functions all focused on supporting customers.

In the spirit of perfect timing, my speech to the group coincides with our winning just about the biggest prize in all of supercomputing last week, a contract to build a 400 Teraflop system, the world's largest, for the Texas Advanced Computing Center (known as TACC). TACC is ironically conveniently located in Austin.

Their press release is here. And here are few things to think about.

First, the "cheap revolution" is winning out in high performance computing - Sun won because we could supply general purpose infrastructure and open source software, which in combination allows TACC to decommission their legacy proprietary Intel systems, and avoid having to use a customized solution. As I discussed here, general purpose systems and operating platforms have emerged as fast enough to displace proprietary and specialized systems. On a performance per watt basis (which is one of the metrics used to measure system efficiency), the numbers are staggeringly in favor of Sun's new wave of open innovation (which is why PG&E; offers rebates for Sun's systems in California).

The win is a comprehensive one for Sun - starting with our free and open source Sun Studio compilers, N1 Systems and Grid management platforms (also free/open source), and deployed on an absolute blizzard of SunFire/Galaxy servers, 1.7 Petabytes of our newest Thumper (x4500) systems, all archived and secured by our StorageTek tape platforms. (As one executive said to me recently, "whoever said 'tape is dead' has never spoken to a customer that produces a terabyte of data every couple of minutes.") Like I said, it's a true systems win.

So yes, we won on performance, but we also won on the economics of open platforms vs. proprietary alternatives, and the environmental and operational efficiency of what we offered. (As Dave Douglas says, the "eco" in "eco-responsible" stands for economics, too). But ultimately, it was our ability to integrate the components to solve the problem, rather than dropping off a big box of cheap parts. And who demonstrated that total advantage?

Engineers, of course. Customer engineers.

Which makes the win so well timed - with nearly 4,000 of them in town, I can say to just about the entire customer engineering population, you are the 'system' in Sun Microsystems. From winning Java technology on BluRay to the world's biggest supercomputing facility, you can't capture those opportunities with a web site and an button. It takes expertise, on site, and a big commitment from customer engineering. So to the TACC team, and all those helping to win equally world changing deals across the planet (as we speak), thank you.

You make a huge difference to our customers, and to Sun.

Viva la Revolución!

 

I've been an officer of a public company for a while, and I've had access to confidential information for a good while longer. And I'm used to holding my tongue on issues that'd be deemed material to Sun's financial performance. Like a pending acquisition or big sale, or data related to how our quarter's going. In a public company, there are very strict laws surrounding how information's disclosed.

So a couple years ago, when I first started blogging, I and our illustrious general counsel were far less worried about what I was saying, than where I was saying it. For example, I couldn't use my blog to announce our quarterly performance, or disclose a material transaction. I had to use a press release, or a conference call (with a telephone operator, no less!).

Why?

A regulation known as "Reg FD," or Regulation Fair Disclosure - which attempts to ensure no one audience gets preferential access to material non-public information. It's a great concept, designed to prevent selective disclosure, or actions that might advantage one investor over another.

Unfortunately, Reg FD doesn't recognize the internet, or a blog, as the exclusive vehicle through which the public can be fairly informed. In order to be deemed compliant, if we have material news to disclose, we have to hold an anachronistic telephonic conference call, or issue an equivalently anachronistic press release, so that the (not so anachronistic) Wall Street Journal can disseminate the news. I would argue that none of those routes are as accessible to the general public as a this blog, or Sun's web site. Our blogs don't require a subscription, or even registration, and are available to anyone, across the globe, with an internet connection. Simultaneously.

Now we happen to have a like-minded Chairman at the United States Securities and Exchange Commission (the 'SEC'), Christopher Cox. So Mike and I sent along a rather formal note last week, requesting a clarification to Reg FD, one that would permit our (and everyone else) using the internet (eg, a company blog or web site) to release material information. Without a press release or operator assisted conference call. We are, after all, the primary source of such material information - there's no point in going through an intermediary if what we're after is fair disclosure and full transparency. Let the light shine in, don't buy a flashlight.

We've had enough interaction with the Chairman (and read enough of his writings) to know he understands the utility of the internet to inform investors - but until we see a formal revision or clarification to FD, we'll still be limiting what we disclose via blogs and the internet. And consuming trees with press releases. Which can't, in the long run, be all that desirable.

But we'll take it one step at a time...

I've attached the letter below (and yes, before you ask, we did fax it, and send by overnight mail).

-------------------------------------------------------------------------------

Via Fax and Federal Express

September 25, 2006

The Honorable Christopher Cox
Chairman
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

Dear Chairman Cox:

You have been a leader in the drive toward bringing greater transparency and access to information for individual investors. Indeed, you recently challenged us to the capitalize on the full potential of the Internet for the benefit of the American investor: "So the question for us today is how do we put the current communications technology to the service of the American investor. How do we harness the Internet which is serving so many customers in so many other ways to deliver the maximum benefit to those in our regulated capital markets." (Chairman Cox Remarks to Interactive Data Roundtable, June, 12, 2006).

Sun Microsystems fully supports and applauds your recognition that the Internet is a "great instrument of national and international communication... [and] also a critical engine of American productivity." (Id.) We have been on the same side of the issue from a technology perspective - from the evolution of open standards for document interchange (such as the Open Document Format), identity interchange (Project Liberty) to the drive toward open source (OpenSolaris and OpenOffice). Our view is that now is the time to fully exploit the innovation that only the Internet can yield in creating the most transparent environment possible for keeping all investors promptly and equivalently informed.

As adopted, Regulation Fair Disclosure's requirement of widespread dissemination can be met through the filing of a Form 8-K or "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public." (17 C.F.R Sec. 243.101(e)(2)) To date, the SEC has not taken the position that the Regulation's "widespread dissemination" requirement can be satisfied through disclosure through the web-postings alone. While that may have been a pragmatic approach in 2000, we believe that the proliferation of the Internet supports a new policy that online communications fully satisfy Regulation FD’s broad distribution requirement.

Our corporate website (www.sun.com) currently receives on average of nearly a million hits per day. This website includes a blog that I write as CEO of Sun Microsystems (www.blogs.sun.com/jonathan), as well as the blogs of over 4,000 of our other employees. My blog is syndicated across the Internet by use of RSS technology; thus, its content is "pushed" to subscribers. This website is a tremendous vehicle for the broad delivery of timely and robust information about our company. It is our view that proprietary news outlets are insufficiently accessible to the broad majority of Internet users and individual shareholders. It is certainly the case that the Internet represents a broader user base than those able to afford subscriptions to traditional forms of media and thus usage of this or any other freely available company blog or web site should be considered sufficient in satisfying the objectives of Regulation Fair Disclosure.

In 2001, upon the one year anniversary of the effective date of Regulation FD, Commissioner Unger requested a study designed to assess the implementation of the regulation. (“Special Study, Regulation Fair Disclosure Revisited,” U.S. Securities and Exchange Commission, December 2001, modified November 29, 2003.) Even then, the roundtable group recommended that “the Commission should embrace technology to expand opportunities for issuers to disseminate information online. The Commission should make clear that options such as adequately noticed website postings, fully accessible webcasts and electronic mail alerts would satisfy Regulation FD.” (Id.) The evolution of the Internet makes these recommendations even more compelling today.

We truly believe in the utility of the Internet - as a means of driving transparency throughout all governmental and corporate processes, as well as greater accessibility of health care, education and social services. Indeed, it is a principle on which Sun Microsystems was founded. We encourage you to look to the Internet to achieve the Commission's objectives of greater investor access to information and would welcome the opportunity to further discuss with you our views in this area.

Sincerely,

Jonathan Schwartz
Chief Executive Officer
Sun Microystems, Inc.

cc. Michael Dillon, General Counsel, Sun Microsystems, Inc

 

I sat down with Robert Scoble recently to talk about explaining network infrastructure to children, the blog demon that sits on my shoulder, and the future of our marketplace serving network businesses. Please check out his new gig... (you can also click here to start watching our discussion immediately (requires quicktime, and good bandwidth)).

 

I was on a panel at a telecom tradeshow a few years ago. I was surrounded by top executives from the largest handset companies, a few global carriers, and a couple technologists. The host asked a basic question: "What's the killer app for the mobile marketplace going to be?"

My peers on the panel had a range of fanciful responses, from the future of mobile payments, to downloadable music, to interactive video services, to presence and location. Just to be a contrarian (and because it represented my reality), I said... "I think it'll be making a phone call."

After a lot of gnashing by the panelists, the audience ended up saying, "yup, that sounds right. A mobile phone that can't place a call isn't worth owning." After all, a need to make voice calls is why most (not all) people buy a phone. And I'd argue the most successful wireless carriers are the ones that have focused on voice service and coverage. At least where I live.

But I was in a European airport a few weeks ago, waiting in a lounge with about 100 other people - when I had to revise my world view. Most people had mobile handsets - we all would've predicted that. But no one was talking on their phone. They were all looking at them, and either browsing or text'ing or playing a game - but no one was making a voice call.

Now draw a chart of your own personal usage over the past few years, and I would imagine the line representing "number of minutes per day I use my phone like a computer" is approaching or surpassing the line representing the "number of minutes per day I'm on a phone call." Whether it's playing a game, grooming your address book, checking a stock price or sending/reading email, the lines are crossing over globally. Not for everyone, but certainly most users (and definitely most younger users, or those living in Hong Kong, where mobile handset penetration exceeds 100%).

With that as a backdrop, I was asked a simple question by an investor last week, "what's the one thing you think the market doesn't understand about Sun's opportunity?"

My response: that the majority of the world will use the internet through their phones, not through a PC.

I'm not sure he believed me. And within the US, I'm not sure many folks agree that most people in the world will use the internet on their phone. Yet. But considering the volumes - nearly 5x the number of people buy a phone each year, than buy a PC, the conclusion seems obvious. And I don't know about you, but when I sample my nieces and nephews, even those in the USA, with "which would you rather have, a new iPod, a Motorola RAZR, Danger's HipTop, Microsoft's XBox or Windows Vista?", I get a pretty consistent answer. (Hint: it ain't Vista.)

Which only strengthens my belief that most people in the world will first experience the internet on their handset. Which means most businesses in the world trying to reach those consumers or leverage the internet should broaden their horizons.

We certainly are.

 

I just got back from a week out talking to investors and customers, and hosting a few customer events in New York City. New York is a cultural center for a number of communities - notably for Sun, those who see technology as a source of value, as a competitive weapon, not just a cost center. Home turf for us. You can watch one of the videos here, and another interview at BusinessWeek, here - sentiment toward Sun is definitely improving.

We had overflow attendance throughout our customer events, thanks both to rising interest in our products, and to Dell cancelling their analyst conference - timing is everything. Speaking of perfect timing, the Wall Street Journal awarded two of our core technologies, dTrace in Solaris 10, and our new ultra-efficient Niagara systems, their highest honors, just in time for me to announce the award on stage. Just in time.

Now, as interest from investors and customers continues to grow, one question I consistently run into is "how much of your revenue comes from software? Or product x, y, z, etc." As I've said repeatedly (and it's at least one reason I write this blog), I'm committed to providing more transparency about our business - as much as I can, within realistic (and fiduciary) limits.

But this is a harder problem than it might first appear. Here's an example.

As you might be aware, we recently introduced a new product, code named "Thumper" - you can read about it here (and enter this contest for free kit). It's a 2-way, general purpose server, with 24 terabytes (yes, Tb) of storage, running Solaris and ZFS. It has very interesting performance (2 Gigabytes per second sustained i/o, for the geeks in the crowd), and pricing (well under $50,000 - less than $2 per Gig). Its service profile is what makes it most interesting, however: because it runs Solaris/ZFS, as the drives fail (and all disk drives eventually do), the system requires no maintenance. Instead, it either slows down, or shrinks (customers can choose) - but the integrity of customer data is never at risk. It's a reliable system built from inherently unreliable parts, a fundamental design principle of the internet.

The other rather remarkable benefit of running Solaris on a storage device is that customers can actually run applications (like Oracle, SAS, or any analytical/trading algorithms) directly on their storage. Performance and efficiency are tremendous, in part because there's no network latency - because there's no network. (Just ask Joyent about their experiences.)

Now here's the challenging part.

As I mentioned, Thumper (sorry, the x4500) is built atop a 2 socket Galaxy server, it leverages Solaris/ZFS (but doesn't require it - Thumper runs Microsoft SQL Server quite well, too), and has 24 terabytes of serial ATA disk inside. So it's part server, part application platform, and part storage product. Customers pay only one price, but in the pursuit of transparency, how should we categorize the revenue? - as server, storage or software product? It obviously contains all three. For now, we're calling it storage - which underrepresents our server and software business.

Going forward, if you believe, as I, that the era of custom hardware and software is coming to an end, this challenge - of characterizing a specialized system in terms of its ingredient components, is only the beginning of such a challenge for Sun - and the rest of the industry. The more we open up, the more you'll see we're built from common components and infrastructure - which complicates answering the question, "how much revenue do you generate from x, y, z."

As interest continues to grow in Sun, we want to respond with more information about who we are as well as what we are - financially, technically, and culturally. Transparency's a competitive advantage, after all.

Which is also why, as of this posting, this blog is now being translated into 11 languages - extending our reach, and invitation to participate, beyond only those who speak English.

So hello, world (again).

 

If you watch television broadcast media in America, like nearly everywhere in the world, you'll find an amazing diversity of content.

In the early morning, you'll see children's programming. Then it's on to morning news, and maybe a talk show or two. Into the afternoon, you'll see soap operas and daytime drama. Toward dinner time, you'll get the evening news. Afterwards you'll see drama or reality TV. Closer to bedtime, you might see something racier.

The point is, the networks know their audiences. There's not one message or product for everyone, there's content specific to each demographic. Knowing that parents need to get ready for school or a day at work, networks put kids programming on in the early morning hours. Knowing stay at home parents want a sense of community, the big talk shows start after the workday has begun. Again, there's no one show for all audiences.

Just as at Sun, there's no one message for all audiences.

Developers care about bleeding edge innovation, but have little buying power; IT executives have all the buying power, but generally avoid the bleeding edge (unless they're supercomputer specialists). Developing nations and development authorities care about intellectual property freedom, and the impact of technology on society. Most IT buyers are more worried about shared services, SOX compliance and financial return. Same technologies, perhaps at differing stages of evolution, but wildly differing audiences.

So with that in mind, I'll tell you about a very uncomfortable customer presentation I attended not too long ago. It was with a highly technical government customer, one focused on their nation's security. They wanted to know about our open source strategy.

What made it uncomfortable was the image on the title page of the presentation - presented by a new employee, the title page was unmodified from when the presentation was delivered to a conference examining the impact of technology on developing nations. It featured this image:

In its original form, the presentation made a simple point - the digital divide is the development divide. Those without access can't participate in the opportunity, whether economic, social, political or academic. And free and open source software was lowering the barriers to access and adoption.

But this particular customer wasn't interested in the network as a social utility - they wanted to know about open source access to LDOMs and NFS over RDMA (that is, not the plight of those without network access).

Now, from inside Sun, as well as outside, I get a lot of feedback about eco-responsibility, or the Participation Age, or bridging the digital divide - some love that we talk about the issues, some think it's a total distraction. "Why don't you just focus on revenue?" Here's why.

Just like the broadcast networks I mentioned above, Sun must serve a diversity of audiences. There is no one message for CIO's that works for development authorities and the open source community. CIO's care about utilization and shared services. Developers want to know where we stand on the environment, and on the next technology leap. Performance wonks want to know about memory bandwidth and RDMA. Shareholders want to know about revenue growth and margin expansion.

If we go after one audience at the expense of the others, we lose in the long run.

Our (growing) challenge has been to shape our message for a technically and culturally diverse audience. As the network becomes a ubiquitous utility, not just for banks, but for teenagers, developing nations and creative artists, there's no one message that will span all audiences and nationalities. One person's eco-responsible server is another startup's lowered utility bill, is another datacenter's real estate consolidation - is another country's ability to redirect development dollars to healthcare, that would've gone to powerplants.

Every audience, like every nation, has a different objective. But every audience, like every nation, represents opportunity to Sun.

And even at the risk of a colliding message from a new employee, we're not interested in letting any of it pass us by. It's far too valuable an opportunity.

 

When Sun was in trouble a few years back, I was really frustrated by a simple reality of open markets: when you're down, it's not your answer to the question "why?" that matters. It's your competition that's quoted everywhere. "Here, let me tell you why Sun's having a hard time." It drove me nuts. (You'll recall, "Why is Sun down?" "Because they're proprietary and expensive, and all customers want is a cheap box.")

So over the past couple weeks, spiking yesterday with the release of industry market share numbers showing we outgrew the market (in my new role, I've been counseled, not by our general counsel, to avoid saying "we spanked the market"), I've been getting a lot of questions going the other way - wanting my view on why our peers are shrinking or troubled.

My answer? I have no idea, go ask them. I don't spend a lot of time thinking about it.

I can tell you why I believe we are succeeding, however. I do spend a lot of time understanding our pipeline, wins and losses.

We've been saying for a while, for the customers we serve, innovation is about the only thing that matters in winning business. Cost of acquisition is a nit - compared to the cost of operation and management. A cheap Ferrari doesn't help a transport company that needs to move 10,000 people every day. They want a bus.

And no, this message doesn't resonate with everybody. It goes over like a lead balloon when you're selling to a flower shop in a shopping mall. Or a dentist's office or restaurant. They want a cheap box. But that's not our core market, that's someone else's. In my view, they're both going to stop buying infrastructure, anyways. Here's my CRM advice for both: shut down your servers, go directly to salesforce.com. We at Sun will then focus our time on salesforce.com. And believe me, IT matters to them. And they are spanking the market. Sorry, handily outpacing the market.

Secondly, the proprietary and expensive moniker is now dead. Dead dead dead. Solaris is open source, and gaining huge share (to my friends in the analyst community: you should stop saying the x64 market is characterized as a Windows and Linux market - when it's obvious there's a growing Solaris market on x64 systems). SPARC is now open source and gaining its rightful place in the industry standard server market - with Niagara's focus on eco-responsibility and energy efficiency seeming awfully timely. Our new lineup of UltraSPARC IV+ systems are cheaper and faster than IBM's Power systems (one customer just told me, "they're appropriately named when you get your electricity bill.") And our Opteron lineup is just, plain, awe inspiring:

But then there's the most fundamental answer to why we're gaining share.

I was sending out a note of congratulations to one of my staff members this week, when we first got wind of the data. And then I figured, it wasn't just his team, it was both our hardware/systems teams. And our software team for Solaris. And our marketing team, and our global sales and service teams. And our amazing ops team. And the corporate functions keeping the wheels on the bus while we're restructuring it. It was every one inside Sun, and all our supporters in the market.

Great products take great teams to gain share. So why'd we gain share?

We had a few good people focused on it. It's amazing what you can do when you put your mind to it.

And just in case you missed the news, here's a couple good articles:

Sun's server sales soar, while Dell bores in Q2 -- The Register
Sun Overtakes Dell In Worldwide Sever Revenue -- InformationWeek

 

Allow me to once again apologize in advance for a lack of brevity. This is one of those blogs you wait a career to write.

A few years ago, I was sitting across from a Wall Street CIO, one of many I was visiting in New York. I was asking them all the same question, "do you feel the grid you're building is delivering a competitive advantage to your business?" (For those that don't know what a grid is, it's a collection of low cost network, storage, computing and software elements, lashed together to do work that historically required very expensive dedicated proprietary technologies). I asked the same question of CIO's in the energy industry, using grids to find oil. In the life sciences industry, using grids to discover drugs or model proteins. In the movie industry, using grids to render movies.

The answers I received, typically delivered by an impassioned CTO that had spent a year building a grid, was always the same: "absolutely yes. Our grid is way better than any of our competitors'."

I haven't stopped asking that question. But about a year ago, after Sun outlined plans to build a public, multi-tenant grid (just like the power companies run), and make it available for $1/cpu-hr, and after a few industry notables began suggesting change was afoot, I started hearing a different tune. "Um... maybe my grid's no different than anyone else's."

Now, since John Gage first uttered the phrase, Sun has been saying "The Network is the Computer." It's one of those rare vision statements that only becomes more true over time. And next week, we're going to prove the point by unveiling the world's first on demand supercomputer. And by on demand, I mean accessible through your browser, with a credit card. This isn't yesterday's definition of On Demand, involving custom financing contracts, prepositioned inventory and a sales rep in a crisp blue suit ready to negotiate. Nope, our definition is just like eBay's: you bring a browser and a credit card, we offer the service. No fuss, no muss. We believe the simplicity, accessibility and affordability of this service changes the face of computing for all organizations, large and small, public or private.

The Sun Grid (which will be officially unveiled in a few days) is an offering we and our partners will be expanding over the months and years to come - like any good product, there's no end to the innovation possible. This represents not only the future of product development at Sun, but like the Java platform and the internet itself, it really represents the future of computing.

As strange as it may sound, consumers are way ahead of most enterprises when it comes to using grids (and paying for them). Most of us live on the grid at home - we use Google and Yahoo!, we love eBay, we upload and share photos and movies, and gather our news from various sources on the web. Most of us bank from home, we leverage network email services - and if you think about it, that transformation all occurred within the last decade. In the blink of an eye.

But behind the corporate firewall, the transformation toward multi-tenant grids has been slower. Frankly, it's been tough to convince the largest enterprises that a public grid represents an attractive future. Just as I'm sure George Westinghouse was confounded by the Chief Electricity Officers of the time that resisted buying power from a grid, rather than building their own internal utilities. But that's not to suggest it hasn't been happening in the business world.

Witness the meteoric rise of Salesforce.com - or RightNow, or PayPal - or any of a number of other services designed to replace traditional infrastructure behind the corporate firewall. Smaller businesses especially have flocked to the grid to spare themselves the headaches of architecting and owning their own datacenters.

But larger enterprises have been tougher to convince. As an example, for the past 15 months, we've been negotiating with one financial institution interested in leveraging our grid for spike loads of portfolio simulations. When their procurement team held up the contract to start negotiating the gauge of chain link we'd use around the grid, and which vendors were approved to supply network cables, we gingerly passed them back to our traditional sales channels - this was clearly a customer that would prefer to build their own infrastructure (can you imagine arguing with PayPal over chain link?). So be it, that's where most IT is purchased today, and will likely be purchased for decades to come.

But there's no denying there's a change occurring.

A good friend of mine, a bioinformatician (love that title), once described how frustrated he was at having to wait for his university's supercomputing facility. "If you had a grid available on line, I'd bring my whole budget to you." Granted his budget was something like $10,000 a quarter, but rumor has it there's a good business in the long tail. My view - most computing will be purchased by that tail. There are, after all, far more small financial institutions than large. The same applies to movie studios, pharmaceutical companies, academic institutions, and nearly every other industry on earth. I'm very comfortable betting on the value in volume - and the willingness of those smaller firms to change culture, process and lifestyle to get a competitive advantage through network services. Just think back ten years - when most enterprises I met laughed at the idea of putting business systems on the internet. Now you're an anomaly if you're "off the grid."

But getting to this week hasn't been without hiccups. After we announced it, we started working with a number of companies interested in negotiating the equivalent of chain link fencing, as above - we saw IBM Global Services (and HP's equivalent) in every one of the deals. We learned a lot, but mainly that most enterprises today define On Demand computing as hosting - they want to give their computers, software, networking and storage to a third party, and rent them back for a fixed price. But that'd be like an electricity company collecting generators and unique power requirements, and trying to build a grid out of them. That's not a business we're in (nor one in which technology plays much of a role - it's all about managing real estate and call centers, as far as we can tell). Grids are all about standardization and transparency - and building economies of scale.

Building a secure, publicly available multi-tenant grid also turned out to be exceptionally complex - there's a reason no one had ever done it before. Most grids are application specific - for search, or auctions or payment. A general purpose computing grid was ploughing new ground - and we wanted to ensure availability and security would be as high as possible. To stress the grid, I actually sent mail to all of Sun's employees challenging them (with the promise of a new workstation) to see if they could bring it down. On the theory I'd rather have a Sun employee, especially a Sun engineer with deep insight into our products, show us how to break it, than a rogue user.

After disappointing a huge swath of our employees who couldn't participate in the contest (our export control policies constrain which elements of our global workforce can be exposed to the grid), we surfaced several vulnerabilities in the very high-scale interaction of hardware, networking and software platforms (again, given that no one's ever done this before, it wasn't all that surprising). We also engaged with the folks who monitor technology export control for the US Government (if there's a harder civil service job in the government, I'd like to know it) - who helped us ensure the grid wouldn't be accessible to people with nefarious intent. They understood we wanted to make this as simple as applying for an eBay account - we'll be close, but we've got to have a higher level of scrutiny (which is why, when you apply for an account, it'll take a few hours, and won't be instantaenous - but that's our goal).

Those are just a few of the hurdles we faced, but now we're ready - ready to release the first, publicly accessible instantiation of the future of computing. And here are a few things to be aware of:

First, in this first release, the Sun Grid will be available only to customers inside the US. Why? Export constraints. Stay tuned for international availability. And yes, we will be doing this globally.

Second, don't expect instant account provisioning. We're shooting for a few hours, depending upon demand, and no worse than 24 hours. But please be patient. We are focused on ease of provisioning, but we're also conscious of the risk and security requirements.

Third, we're opening on day 1 with less than 5,000 cpu sockets (both Opteron and UltraSPARC) - the world's most power efficient servers. As demand emerges, we'll be adding to that capacity - without limitation.

And finally, stay tuned for the web service API's. What you'll see this week is relatively simple, and a version 1.0 foundation for what's in store. Where are we headed? To release computing as a service, to be mashed up with other services (I can hear VC's around the world offering a standing ovation - 'no more having to build one datacenter per startup!')

If you're read this far, here's a final bit of color on the incredibly fortuitous domain name for the future of computing: Network.com.

As it turns out, midway through Sun's due dilligence in the acquisition of StorageTek, we learned they were the owners of Network.com. They hadn't really ever used it - a hidden gem. In hindsight, it may end up being one of the most valuable domain names in the history of computing. And we're certainly going to do what we can to burnish that value...

So have at it! Go to network.com later this week, grab a PayPal account, and experience for yourself what it's like to use one of the world's largest supercomputers. Without having to house it, manage it, power it, administer it, provision it... or buy it.

The Network is the Computer.

Once again, more true by the day.

 

I love the humor and mischief in Sun. It's one of the things that drew me here long before I joined the company, and one of the things I really appreciate about our culture. But frankly, it's one of the things that's gotten close to being rinsed away by years of cost cutting.

So I'd like to officially declare, herewith, a rebirth of fun at Sun. Good, cheap, drive the other guys up a wall, fun. And to that end...

You may have read about a very interesting art project. Some enterprising artists decided to mix technology and art, to create likenesses of technology industry titans, attach a Java phone to the sculptures, and set them free to find their way home. The project relied upon the kindness of strangers. Public spirited individuals that contributed to the return of the artwork to its rightful destination would leave their email address on the back of the artwork, and receive a percentage of the proceeds from the sale of the sculptures.

The Java phone enabled the sculptures to be tracked via a service operator, Accutracking, and via Google maps. You can read about the technical details here, and track animated maps of each piece's progress.

Now, not everyone thought this was a cool idea. When presented with the opportunity to purchase the likeness of Bill Hewlett and Dave Packard, it having made the trek from the printer ink section of a San Jose Office Depot, our friends at HP elected not to honor their founders. So out of respect for HP's legacy, the fine folks in Sun's marketing team decided to acquire the artwork. Bill and Dave are absolute legends, held in the deepest respect by all of us at Sun. We were honored at the opportunity.

So we bought them, and their garage, for $6,000. Lock, stock and Java phone.

And what better way of demonstrating the strength of our partnership than with a picture:

With nearly 25% of Solaris downloads requested on to HP's servers, we know their customers really want the partnership, and we're happy to oblige.

To warn you in advance, Bill and Dave have both indicated a strong interest in learning more about Sun and the Solaris platform, so stay tuned. We're putting together a global tour. Maybe even some new t-shirts.

 

I love the humor and mischief in Sun. It's one of the things that drew me here long before I joined the company, and one of the things I really appreciate about our culture. But frankly, it's one of the things that's gotten close to being rinsed away by years of cost cutting.

So I'd like to officially declare, herewith, a rebirth of fun at Sun. Good, cheap, drive the other guys up a wall, fun. And to that end...

You may have read about a very interesting art project. Some enterprising artists on the east coast of the USA decided to mix technology and art, to create likenesses of technology industry titans, attach a Java phone to the sculptures, and set them free to wend their way West. The project relied upon the kindness of strangers. Public spirited individuals that contributed to the return of the artwork to its rightful home in Silicon Valley, would leave their email address on the back of the artwork, and receive a percentage of the proceeds from the sale of the sculptures.

The Java phone enabled the sculptures to be tracked via a service operator, Accutracking, and via Google maps. You can read about the technical details here), and track animated maps of each piece's progress.

Now, not everyone thought this was a cool idea. When presented with the opportunity to purchase the likeness of Bill Hewlett and Dave Packard, it having made the trek from Boston, our friends at HP elected not to honor their founders. So out of respect for HP's legacy, the fine folks in Sun's marketing team decided to acquire the artwork. Bill and Dave are absolute legends, held in the deepest respect by all of us at Sun. We were honored at the opportunity.

So we bought them, and their garage, for $6,000. Lock, stock and Java phone.

And what better way of demonstrating the strength of our partnership than with a picture:

With nearly 25% of Solaris downloads requested on to HP's servers, we know their customers really want the partnership, and we're happy to oblige.

To warn you in advance, Bill and Dave have both indicated a strong interest in learning more about Sun, so stay tuned. We're putting together a global tour. Maybe even some new t-shirts.

 

I was at Craigslist recently, and heard they were being kicked out of a hosting facility for being widly popular - in order to serve a massively expanding user base, their growing infrastructure was requiring more electricity than the facility could supply. If you live in California, you know that energy efficiency isn't just a fad - it's a means of driving competitive advantage and flexibility. And keeping costs in line. Just as surges, or poor planning, can leave businesses exposed strategically and financially.

The state also takes energy efficiency seriously - if you drive a hybrid or high efficiency car, you can use the carpool lane on highways. If you put solar panels on your rooftop, you can qualify for rebates. This isn't about political correctness, it's about working within constraints, driving sustainable development and lessening environmental footprints. It's not politically correct, it's economically correct.

So I was particularly pleased to see us announce that PG&E; will give rebates to California businesses for jettisoning our competitors products, and replacing them with more efficient Niagara machines, our UltraSPARC T1000 or T2000 servers. We are the first company to have met the requirements that prove the outstanding efficiency of our datacenter infrastructure. Moving off our competition and onto Sun saves money, power, space, and lessens the impact the IT industry has on the environment. And now it's not just us saying that, it's the Pacific Gas and Electric company, the state's largest power utility.

If you ever get asked by a cynic, or your management "what's the real value of being green?," I can give you a very specific answer, at least for Sun. In the State of California, it's worth $700 to $1000 per server. I did say per server. Every single bid we're in across the state just got $700 to $1,000 per server more competitive.

With ASP's under $5,000 for a Niagara machine, that's not a little competitive push.

That's real power.

 

I was at Craigslist recently, and heard they were being kicked out of a hosting facility for being widly popular - in order to serve a massively expanding user base, their growing infrastructure was requiring more electricity than the facility could supply. If you live in California, you know that energy efficiency isn't just a fad - it's a means of driving competitive advantage and flexibility. And keeping costs in line. Just as surges, or poor planning, can leave businesses exposed strategically and financially.

The state also takes energy efficiency seriously - if you drive a hybrid or high efficiency car, you can use the carpool lane on highways. If you put solar panels on your rooftop, you can qualify for rebates. This isn't about political correctness, it's about working within constraints, driving sustainable development and lessening environmental footprints. It's not politically correct, it's economically correct.

So I was particularly pleased to see us announce that PG&E; will give rebates to California businesses for jettisoning our competitors products, and replacing them with more efficient Niagara machines, our UltraSPARC T1000 or T2000 servers. We are the first company to have met the requirements that prove the outstanding efficiency of our datacenter infrastructure. Moving off our competition and onto Sun saves money, power, space, and lessens the impact the IT industry has on the environment. And now it's not just us saying that, it's the Pacific Gas and Electric company, the state's largest power utility.

If you ever get asked by a cynic, or your management "what's the real value of being green?," I can give you a very specific answer, at least for Sun. In the State of California, it's worth $700 to $1000 per server. I did say per server. Every single bid we're in across the state just got $700 to $1,000 per server more competitive.

With ASP's under $5,000 for a Niagara machine, that's not a little competitive push.

That's real power.

 

As you know, I'm a big believer in the transparency blogging drives for me and Sun. Driving information to the marketplace - all employees at Sun can speak their minds and clarify our strategies and perspectives, rather than having a pundit or competitor talk over us. And in reverse, driving information in to Sun - if there are problems to be found in our business, I'd just as soon they were in the open, rather than hidden away. We (and true, the rest of the world) can see and fix problems first, rather than letting those uninterested in fixing the problems take advantage of their existence (whether competitors or litigants). Sunlight's a great disinfectant.

As a CEO who blogs, the most frequent question I get is, "doesn't this drive your lawyers nuts?" And as I've said, no. Our legal team understands, guides, drives - and protects - our business. All without sneaking into phone booths to change costume. And with technology, regulation and our products all colliding in the marketplace (is it legal to scream "SOX!" in a theater filled with CEO's?), I sleep better at night knowing they're actively engaged.

If you want evidence that navigating today's business environment requires careful thinking, consider one particularly ironic issue: posting material information about Sun on my blog, including information about our business results, runs the risk of violating something called Regulation Full Disclosure, or Reg FD. The regulation's goal is to ensure broad, non-exclusionary distribution of material information to the investing public. And somehow, my blog isn't deemed to be such a non-exclusionary distribution vehicle (but a press release, or the Wall Street Journal is). Reg FD is something we're going to be discussing with Commissioner Cox at the SEC (whose views seem to parallel ours - the more transparency the better).

Are our lawyers in the way? The opposite, they're driving the change. Want proof?

Very quietly, this week, our General Counsel - the senior most lawyer in all of Sun - started a blog. It's here. He, too, is now the only member of his tribe, the only GC in all the Fortune 500 to have a blog.

Now the real question should be (especially if you know Mike), am I worried about what he's going to say?

(Joke, Mike, take a joke.)

 

As you know, I'm a big believer in the transparency blogging drives for me and Sun. Driving information to the marketplace - all employees at Sun can speak their minds and clarify our strategies and perspectives, rather than having a pundit or competitor talk over us. And in reverse, driving information in to Sun - if there are problems to be found in our business, I'd just as soon they were in the open, rather than hidden away. We (and true, the rest of the world) can see and fix problems first, rather than letting those uninterested in fixing the problems take advantage of their existence (whether competitors or litigants). Sunlight's a great disinfectant.

As a CEO who blogs, the most frequent question I get is, "doesn't this drive your lawyers nuts?" And as I've said, no. Our legal team understands, guides, drives - and protects - our business. All without sneaking into phone booths to change costume. And with technology, regulation and our products all colliding in the marketplace (is it legal to scream "SOX!" in a theater filled with CEO's?), I sleep better at night knowing they're actively engaged.

If you want evidence that navigating today's business environment requires careful thinking, consider one particularly ironic issue: posting material information about Sun on my blog, including information about our business results, runs the risk of violating something called Regulation Full Disclosure, or Reg FD. The regulation's goal is to ensure broad, non-exclusionary distribution of material information to the investing public. And somehow, my blog isn't deemed to be such a non-exclusionary distribution vehicle (but a press release, or the Wall Street Journal is). Reg FD is something we're going to be discussing with Commissioner Cox at the SEC (whose views seem to parallel ours - the more transparency the better).

Are our lawyers in the way? The opposite, they're driving the change. Want proof?

Very quietly, this week, our General Counsel - the senior most lawyer in all of Sun - started a blog. It's here. He, too, is now the only member of his tribe, the only GC in all the Fortune 500 to have a blog.

Now the real question should be (especially if you know Mike), am I worried about what he's going to say?

(Joke, Mike, take a joke.)

 

I had lunch with Tony Blair today. (And yes, I have been waiting all afternoon to type that.)

I and a few other Silicon Valley leaders were honored to host the first visit ever for a British Prime Minister to Silicon Valley. And he fit right in (wardrobe aside, but he's a world leader after all, and asking him to dress down for Silicon Valley would be like asking Steve Jobs to skip blue jeans and a black shirt - morally objectionable to someone).

The conversation ranged across a variety of topics, from education to cultural competitive advantage, to the government's engagement in delivery of social services via the network.

We only really had an hour together, so I thought I'd jot down a few of the vignettes from our discussion.

The Prime Minister wanted advice on advancing the United Kingdom's position in Europe for research and development. Nearly everyone in the room referenced Stanford and Berkeley's role in making the Valley attractive - as a source of graduates, to be sure, but more as a revolving door for research, partnership, education, dialog. I reminded the Prime Minister that the "SUN" in our ticker symbol, "SUNW" stands for Stanford University. John Hennessy made an interesting reference, quite serious I think, to Stanford's now looking toward the philanthropy of its graduates as a far more lucrative source of return on its intellectual property then traditional licenses or royalties.

I took a quick poll to prove a point - nearly everyone in the room was a product of public school education (myself included). So the opportunities weren't isolated to higher education. (Mr. Jobs followed up to make the reality more painful - showing how few of us were sending our children to public school.)

And lastly, there was a discussion of wage rates and cost of living on the desirability of an economy for R&D.;

My point - shared by many in the room, but not all - was that Silicon Valley's (and certainly Sun's) business is largely insensitive to the price of labor on the world market. As one of my staff members said recently, "when it comes to hiring, this ain't Costco, we don't buy in bulk." If we can bring a product to market three or six or twelve months earlier than planned, wage rates as a percentage of total return aren't even measurable in calculating returns. (What was Bill Joy's starting salary? My point... who cares.)

So if you want to attract companies like Sun to your economy, focus on investing in education, in your students, and in your leaders. Focus on educating your policy makers as to why you're committed to education - not to build presitigious institutions, but to invest in progress, academic as well as economic. Focus on the value of broad based talent as a competitive weapon, don't be distracted by cost reducing labor.

So on behalf of Sun, and our little corner of Silicon Valley, I laud the Prime Minister for taking the time out of a very difficult schedule to visit Silicon Valley. It took courage and time.

What we all recognize to be the basic ingredients of progress.

 

I had lunch with Tony Blair today. (And yes, I have been waiting all afternoon to type that.)

I and a few other Silicon Valley leaders were honored to host the first visit ever for a British Prime Minister to Silicon Valley. And he fit right in (wardrobe aside, but he's a world leader after all, and asking him to dress down for Silicon Valley would be like asking Steve Jobs to skip blue jeans and a black shirt - morally objectionable to someone).

The conversation ranged across a variety of topics, from education to cultural competitive advantage, to the government's engagement in delivery of social services via the network.

We only really had an hour together, so I thought I'd jot down a few of the vignettes from our discussion.

The Prime Minister wanted advice on advancing the United Kingdom's position in Europe for research and development. Nearly everyone in the room referenced Stanford and Berkeley's role in making the Valley attractive - as a source of graduates, to be sure, but more as a revolving door for research, partnership, education, dialog. I reminded the Prime Minister that the "SUN" in our ticker symbol, "SUNW" stands for Stanford University. John Hennessy made an interesting reference, quite serious I think, to Stanford's now looking toward the philanthropy of its graduates as a far more lucrative source of return on its intellectual property then traditional licenses or royalties.

I took a quick poll to prove a point - nearly everyone in the room was a product of public school education (myself included). So the opportunities weren't isolated to higher education. (Mr. Jobs followed up to make the reality more painful - showing how few of us were sending our children to public school.)

And lastly, there was a discussion of wage rates and cost of living on the desirability of an economy for R&D.;

My point - shared by many in the room, but not all - was that Silicon Valley's (and certainly Sun's) business is largely insensitive to the price of labor on the world market. As one of my staff members said recently, "when it comes to hiring, this ain't Costco, we don't buy in bulk." If we can bring a product to market three or six or twelve months earlier than planned, wage rates as a percentage of total return aren't even measurable in calculating returns. (What was Bill Joy's starting salary? My point... who cares.)

So if you want to attract companies like Sun to your economy, focus on investing in education, in your students, and in your leaders. Focus on educating your policy makers as to why you're committed to education - not to build presitigious institutions, but to invest in progress, academic as well as economic. Focus on the value of broad based talent as a competitive weapon, don't be distracted by cost reducing labor.

So on behalf of Sun, and our little corner of Silicon Valley, I laud the Prime Minister for taking the time out of a very difficult schedule to visit Silicon Valley. It took courage and time.

What we all recognize to be the basic ingredients of progress.

 

Please read the Safe Harbor Statement at the bottom of this page - it's important (and beautifully written :).

If you've seen the press release, you know we had a good fourth quarter to close out our 2006 fiscal year.

This is now my first full quarter as CEO - and I'm pleased with our progress. Our basic restructuring is underway (that's what the big charge was), and we showed some good growth on the top line. We're seeing a lot of demand, which showed up as revenue that beat Wall Street estimates, very solid bookings, and good deferred (future) revenue.

So I thought I'd add some color to our numbers, and put some of our competitor's comments into context. Answering the questions surrounding "why'd you grow when others were having a hard time?"

First, the market is growing.

We see no global slowdown in IT. Despite what one competitor said. Our key customers (those that view information technology as a competitive advantage, not a cost center) are continuing to invest. They're investing to drive on-line relationships, fuel competitive advantage, and drive efficiencies - but mostly they're investing because they see a return.

We saw especially good demand in our computer systems business (which grew in a quarter where some of our biggest competitors shrank) - and especially on the low end/high volume segment of our product line. Our newest Niagara UltraSPARC systems surpassed the $100M per quarter mark, just about the fastest ramp of any product I can remember. Our Galaxy x64 systems grew way faster than many of our x86 peers (and that was before the big launch that redefined our product set), and we grew our StorageTek business faster than their standalone history - which means we're seeing revenue synergies. We closed several great embedded Java platform deals, too, with three of the largest consumer electronics companies.

That said, I'm definitely seeing the enterprise PC business slow down. Corporate users are putting off new PC's until Vista comes into view, while consumers (witness booming results from Motorola, Nokia and Apple) are biasing away from PC's for really great consumer devices. (Ask a teenager which they'd prefer, a new phone, or a new PC...)

Phones powered by Java technology, Blu Ray DVD players (I saw my first in a Sony store this weekend), XM Radios, Vonage phones - those devices, in aggregate, will radically outship PC's over the coming year. And as a result, they'll drive more growth in demand for network infrastructure than PC's. (Phones aren't just for phone calls, after all.) So as we've been saying for a while, adoption of the Java platform is a leading indicator of Sun's business - just like more lightbulbs drive demand for bigger generators (even if you don't own the lightbulb factory).

Second, choice matters - we're opening new doors.

Greater than 60% of the customers we're meeting through our Try and Buy program are new to Sun. (Well above my expectations.) We exceeded the 5 million license mark for Solaris 10 in Q4 - the majority running on Dell, HP and IBM computers. (Go ahead, read that sentence again, I always read it twice.) We're reaching out beyond Sun's traditional hardware base, and beyond the world of proprietary software - to customers we may never have otherwise met, who now want to talk to us about network identity, data management and business integration. Frankly, Dell, HP and IBM are now channel partners. Please quote me.

And the addition of Ubuntu Linux on our SPARC servers means we're now talking to leading edge Linux customers about consolidating outdated infrastructure. Add in to the mix that we run Windows on our Galaxy x64 systems, and that we routinely attach and support StorageTek systems on IBM mainframes - it's all upside for Sun's customers, and Sun's shareholders. Choice drives opportunity. And customer acquisition.

Third, innovation matters more than price.

Being cheap (or cutting corners on components) doesn't matter as much as delivering value and innovation. A 230 MPH supercar that gets 9 miles to a $4 gallon of gas, isn't nearly as interesting to today's consumer as a Tesla - that uses electricity at a cost of about 1 cent/mile (and appears to outperform most supercars, and yes, I'd like to own one, and no, I haven't convinced my wife). And Niagara is to Tesla as [competitor here] is to an outdated supercar. (And again, if you'd like to try a FREE NIAGARA for 60 days, - we pay return postage if you don't like it.)

Datacenters have to focus on operational cost as much as acquisition price - that's a design priority for Sun. That you don't have to service our newest x4500 (Thumper) storage, but can instead let drives fail in place and just reclaim the space once a year, makes it more competitive than what a hobbyist can build for $1.9/gigabyte. That we can do it in four rack units, at <$2/gig, while running plain vanilla Solaris on the machine - matters a ton to a customer that wants to manage 500 of them. More than it might to a hobbyist who wants to put one in his den (have I mentioned that's an expensive demographic to please?).

Lastly, execution matters.

I want to congratulate and thank the worldwide operations teams - who got us through our ROHS and WEEE transitions without a scratch. If there were an award for smooth execution, you'd get it folks.

And to the sales and service organizations for delivering on Q4 for us and our customers - you did a fantastic job, challenges and all. And remember, lots of demand is a first class problem to have (painful and tiring though it may be when you're wading through it...).

I'm feeling great about our competitive position, about getting our basic restructuring in place, and great about the market opportunity. So much so, we're having a debate internally about bringing back one of our taglines, "We're the Dot in Dot Com." Or refreshed, "We're the Dot in 2.0."

So, what do you think? Comments welcome :)

_______________________________________________

Safe Harbor Statement: This blog entry contains predictions, projections and other forward-looking statements regarding Sun's expected future financial results and business opportunities. This includes statements regarding demand for our products; growth of and investments in the IT market; revenue synergies from our acquisitions; increased demand for network infrastructure; and our market opportunity. Our actual future results may be very different from our current expectations. Factors that could cause actual results to differ materially from our expectations include: increased competition; failure to rapidly and successfully develop and introduce new products; risks associated with Sun's international customers and operations; reduced spending in the IT market; and failure to successfully integrate acquired companies. We encourage you to read the 10-Ks, 10-Qs and other reports that we file periodically with the SEC for a discussion of these and other risks. We do not currently intend to update these forward looking statements.

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Please read the Safe Harbor Statement at the bottom of this page - it's important (and beautifully written :).

If you've seen the press release, you know we had a good fourth quarter to close out our 2006 fiscal year.

This is now my first full quarter as CEO - and I'm pleased with our progress. Our basic restructuring is underway (that's what the big charge was), and we showed some good growth on the top line. We're seeing a lot of demand, which showed up as revenue that beat Wall Street estimates, very solid bookings, and good deferred (future) revenue.

So I thought I'd add some color to our numbers, and put some of our competitor's comments into context. Answering the questions surrounding "why'd you grow when others were having a hard time?"

First, the market is growing.

We see no global slowdown in IT. Despite what one competitor said. Our key customers (those that view information technology as a competitive advantage, not a cost center) are continuing to invest. They're investing to drive on-line relationships, fuel competitive advantage, and drive efficiencies - but mostly they're investing because they see a return.

We saw especially good demand in our computer systems business (which grew in a quarter where some of our biggest competitors shrank) - and especially on the low end/high volume segment of our product line. Our newest Niagara UltraSPARC systems surpassed the $100M per quarter mark, just about the fastest ramp of any product I can remember. Our Galaxy x64 systems grew way faster than many of our x86 peers (and that was before the big launch that redefined our product set), and we grew our StorageTek business faster than their standalone history - which means we're seeing revenue synergies. We closed several great embedded Java platform deals, too, with three of the largest consumer electronics companies.

That said, I'm definitely seeing the enterprise PC business slow down. Corporate users are putting off new PC's until Vista comes into view, while consumers (witness booming results from Motorola, Nokia and Apple) are biasing away from PC's for really great consumer devices. (Ask a teenager which they'd prefer, a new phone, or a new PC...)

Phones powered by Java technology, Blu Ray DVD players (I saw my first in a Sony store this weekend), XM Radios, Vonage phones - those devices, in aggregate, will radically outship PC's over the coming year. And as a result, they'll drive more growth in demand for network infrastructure than PC's. (Phones aren't just for phone calls, after all.) So as we've been saying for a while, adoption of the Java platform is a leading indicator of Sun's business - just like more lightbulbs drive demand for bigger generators (even if you don't own the lightbulb factory).

Second, choice matters - we're opening new doors.

Greater than 60% of the customers we're meeting through our Try and Buy program are new to Sun. (Well above my expectations.) We exceeded the 5 million license mark for Solaris 10 in Q4 - the majority running on Dell, HP and IBM computers. (Go ahead, read that sentence again, I always read it twice.) We're reaching out beyond Sun's traditional hardware base, and beyond the world of proprietary software - to customers we may never have otherwise met, who now want to talk to us about network identity, data management and business integration. Frankly, Dell, HP and IBM are now channel partners. Please quote me.

And the addition of Ubuntu Linux on our SPARC servers means we're now talking to leading edge Linux customers about consolidating outdated infrastructure. Add in to the mix that we run Windows on our Galaxy x64 systems, and that we routinely attach and support StorageTek systems on IBM mainframes - it's all upside for Sun's customers, and Sun's shareholders. Choice drives opportunity. And customer acquisition.

Third, innovation matters more than price.

Being cheap (or cutting corners on components) doesn't matter as much as delivering value and innovation. A 230 MPH supercar that gets 9 miles to a $4 gallon of gas, isn't nearly as interesting to today's consumer as a Tesla - that uses electricity at a cost of about 1 cent/mile (and appears to outperform most supercars, and yes, I'd like to own one, and no, I haven't convinced my wife). And Niagara is to Tesla as [competitor here] is to an outdated supercar. (And again, if you'd like to try a FREE NIAGARA for 60 days, - we pay return postage if you don't like it.)

Datacenters have to focus on operational cost as much as acquisition price - that's a design priority for Sun. That you don't have to service our newest x4500 (Thumper) storage, but can instead let drives fail in place and just reclaim the space once a year, makes it more competitive than what a hobbyist can build for $1.9/gigabyte. That we can do it in four rack units, at <$2/gig, while running plain vanilla Solaris on the machine - matters a ton to a customer that wants to manage 500 of them. More than it might to a hobbyist who wants to put one in his den (have I mentioned that's an expensive demographic to please?).

Lastly, execution matters.

I want to congratulate and thank the worldwide operations teams - who got us through our ROHS and WEEE transitions without a scratch. If there were an award for smooth execution, you'd get it folks.

And to the sales and service organizations for delivering on Q4 for us and our customers - you did a fantastic job, challenges and all. And remember, lots of demand is a first class problem to have (painful and tiring though it may be when you're wading through it...).

I'm feeling great about our competitive position, about getting our basic restructuring in place, and great about the market opportunity. So much so, we're having a debate internally about bringing back one of our taglines, "We're the Dot in Dot Com." Or refreshed, "We're the Dot in 2.0."

So, what do you think? Comments welcome :)

_______________________________________________

Safe Harbor Statement: This blog entry contains predictions, projections and other forward-looking statements regarding Sun's expected future financial results and business opportunities. This includes statements regarding demand for our products; growth of and investments in the IT market; revenue synergies from our acquisitions; increased demand for network infrastructure; and our market opportunity. Our actual future results may be very different from our current expectations. Factors that could cause actual results to differ materially from our expectations include: increased competition; failure to rapidly and successfully develop and introduce new products; risks associated with Sun's international customers and operations; reduced spending in the IT market; and failure to successfully integrate acquired companies. We encourage you to read the 10-Ks, 10-Qs and other reports that we file periodically with the SEC for a discussion of these and other risks. We do not currently intend to update these forward looking statements.

Click Here to Return to Top.