Lunch with Prime Minister Tony Blair...

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.

Posted on 10:59PM Jul 30, 2006 | Comments[20]

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We're the Dot in Web 2.0?

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 :)

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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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Posted on 05:48PM Jul 25, 2006 | Comments[57]

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The Rise of the General Purpose System

NOTE: Update at bottom...

Silicon Valley's hot again. How can I tell? My favorite barometer is a personal one - my commute down either of the the two major highways joining San Francisco and San Jose is as bad as it was in the bubble.

On a less anecdotal note, I've also been spending a lot of time with newly funded startups (and the ballooning ranks of venture and private equity investors). Interest level, and market opportunity, are up, for the innovations that fuel the internet.

On the technology front, one of the most interesting trends I've seen is the near disappearance of custom hardware. I'm not seeing nearly so many ASICS or custom boards built by hardware startups hoping to become the next Sun or Cisco. I was talking to one such company just a couple weeks ago, run by a guy known for having made big investments in custom hardware designs over the years. So I asked "where'd all the ASICS go?"

His response? "The bar's a lot higher today - general purpose products are so fast, we do pretty much everything in software." As Solaris and the systems on which it runs get faster, they're continuing to displace a breadth of specialized solutions in the market, from customized operating systems or private distros to ASICS and daughter boards.

And in an interesting way, this goes against what customers want.

For the most part, customers love special purpose systems. The NAS filers, load balancers, storage switches and firewalls, even custom search appliances, solve a specific problem, do so with great focus, and are like novacaine on a technical problem. Have a pain? Numb it with an appliance.

There's only one part they don't love. Living with the economics.

Leaving high price tags aside, specialized products typically require specialized skills, customized management or versioning processes, and they tend to be difficult to integrate into increasingly uniform datacenter processes. (Southwest Airlines gets great economic advantage from only flying Boeing 737's - most CIO's crave a "737 datacenter," built on one OS, with shared services for all - yet most will admit to having inherited a Noah's Ark).

On the other hand, suppliers (like Sun) love general purpose systems. By design, general purpose systems, like general purpose servers or operating systems, aren't focused on one market. Instead, they focus on horizontal segments of the market (like web serving), and allow us to amortize R&D investments over a far broader opportunity. While allowing us and our customers to leverage the management, supply chains, administration, versioning and even ISV's that build up around very high volume platforms.

Potentially more work for the customer on day one, but typically massive financial and administrative savings. As an example, tomorrow morning we're introducing a new product, internally named "Thumper." It's a 4 core server with 24 terabytes of storage, housed within a very small (4 RU) box, leveraging the most advanced file system to hit the market in years, ZFS.

We're still figuring out what to call the product, "open source storage" or "a data server," but by running a general purpose OS on a general purpose server platform, packed to the gills with storage capacity, you can actually run databases, video pumps or business intelligence apps directly on the device itself, and get absolutely stunning performance. Without custom hardware (ZFS puts into software what was historically done with specialized hardware). All for around $2.50/gigabyte - with all software included.

How much new work does a customer need to do to run Thumper in their network? None. It's just a Solaris system, managed, versioned and administered like all their other Solaris systems. How much work does an ISV need to do to take advantage of Thumper? None, like I said, it's just Solaris, the same as what runs on our, HP's, Dell's and IBM's servers.

And the best part for Sun? Thumper leverages the general purpose systems innovation at our core, leverages the open source operating system used in datacenters across the world already, and allows us to amortize a tighter R&D budget over a broader market. While driving cost down for customers, and expanding the market for our ISV's, resellers and partners. Moving from specialized to generalized.

So if you'd like to know what Thumper looks like (and at 170 lbs, it is a thing of beauty, but a very heavy thing of beauty), it looks like this:

And yes, we will be including Thumper in our Try and Buy program. And I'd like to personally apologize to all those poor UPS, DHL and FedEx drivers...

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Update: video for this morning's launch event, here. Worth watching all (especially Fowler's segment). My favorite part was Tim O'Reilly talking about the impact of Web 2.0 on application architectures and datacenter requirements. He's accompanied by Scott Yara from Greenplum, one of the smartest startups I've seen in a while. Their interview is at 1:04:35 in the playback.

And btw, given the volume of comments related to "how do I replace a dead drive" in Thumper - the answer is you don't, you let Solaris and ZFS simply remove it from use (while maintaining provable data integrity), and leave it for an annual maintenance call to clean out failed drives and drop in fresh ones (known in the business as "failing in place"). If you're interested in understanding the magic behind ZFS, this is a great tutorial (delivered by one of the inventors of ZFS, the very eloquent Bill Moore).

Posted on 11:30PM Jul 10, 2006 | Comments[49]

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