Tuesday, March 24, 2009

SUN, Solaris, Linux, and Growth

The Past 10 Years for SUN

SUN's investment into Linux, historically, to blunt Microsoft, has cut it's own throat since 2000. Without SUN's investment into Linux, UNIX like environments could have become irrelevant, however, with Microsoft's NT operating system release and IIS - so I think no matter what SUN did, it was a lose-lose situation... but SUN's backing of x86 Linux was a more strategic move than just ceding the position to Microsoft & x86, giving them a better position to compete later.

Linux and The Future

SUN's more recent targeted investment into Debian Linux to endorse Ubuntu and now adopt a variant of Debian packaging, may be an attempt to stop the bleeding of Solaris into RedHat and create more "choice" - which helps keep Solaris relevant under x64.

I think the adoption of Debian Linux packaging was a mistake by SUN, I believe they could have adopted new standards using a limited SVR4 format to achieve the same goals and back-port the new standard packaging to Linux for all of their OpenSource products (i.e. OpenOffice, NFS, ZFS, MySQL, GlassFish, Java, etc.)

Competition with Linux & Solaris under x64 and T Processors

Is Linux needed needed on the T processors to compete with x64?

Considering that SUN's hardware T market running Solaris has double the volume of the x64 market running combined Linux, Solaris, and Windows, Linux does not seem that important, to drive SUN sales (more on this later, with a quarterly report graph.)

Since the same software is available under Linux as it is under Solaris, perhaps not. I think the competition between the T and x64 processors is a more significant issue, with Linux impact. A single Solaris socket T processor no longer outruns Linux quad socket x64 processors on web serving workloads.

If Web Serving is the typical Linux workload, then the SPECWeb indicates that the T processors have been outperforming x64 for years on a price/performance ratio, until benchmarks published just a few months ago (with a single socket T2 outrunning quad sockets x64... but now quad socket hex core Intel chips are pushing 25% higher performance over a single socket T2) making x64 Linux price competitive with Solaris & SPARC T.

This being said, in the carrier markets, with the 1U high dual T2+ platforms, there are no 8 socket 1U high hex-core Intel platforms to compete with it. Also, a 4U high quad socket T platform from sun scaling up to the equivalent of 4 T sockets, three quad socket X64 units would be required to compete (with dozens of NIC cards.) The modern x64 competition is starting to press the 1 & 2 year old T chips now. SUN really needs a T refresh (T3 should get them to be about 2-3x as fast as the T2 per-socket an restore the performance lead to 1x T socket being faster than 4x x64 sockets, to compete in this workload arena effectively.)

If SUN can release a T processor for embedded consumer or network devices, I think Linux may be a requirement, or a significantly slimmed down Solaris, in order to compete. I think that SUN avoiding this space has been disastrous decision, seeing the Apple had become largely relevant again, through this angle.

Profitability of the SUN SPARC T Processors

Some believe it is a "wild guess" to suppose the T family is profitable, but I think we can analyze the quarterly results to come up with a conclusion based closer to reality. SUN's product gross margins seem to float between 35% and 50%.

It seems the T processors make up about 375 Million (in Q2-2009) vs non-T SPARC at about 700 Million.

Everything else looks about equal. Take these two product sets (T SPARC, non-T SPARC), with increasing revenue on T and decreasing revenue on non-T, plot both against the Products gross margin... it looks like the T processors are not as profitable as the Non-T processors, but still reasonable. Clearly, SUN needs a refresh in the non-T processors (SPARC64 VII+ or RocK), to stabilize the downward trend, since this is the lion-share of the product revenue.

The "Other Systems" trend, seems to be inversely proportional to the T SPARC revenues... this bothers me historically, since any growth in the T SPARC seems to be getting canceled out by this other legacy category over the past 2 years, but this legacy category does not really exist any longer, as a proportion of significant revenue, so I don't believe it is worth tracking, moving forward.

If the T revenue can become in-parity with the non-T sales or supercede the non-T sales, then the unpredictability of SUN's quarterly profits & losses will be suppressed, improving the suitability for longer term investors.

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