Sun Enters the Commodity Silicon Business

We're announcing the fastest microprocessor we've ever shipped this week - delivering 89.6 Ghz of parallel computing power on a single chip - running standard Java applications and open source OS's. Simultaneously, we've said we're entering the commodity marketplace, and opening the chip up to our competition. It's probably worth explaining.

I've made the following statement before, but it bears repeating - what do banks, oil companies, and telecom operators all have in common?

They represent some of the largest industries on earth, yield some of the wealthiest companies, and are all oriented around monetizing... commodities. Commodity markets are the largest and most valuable on earth (despite those who seem to think they have no value).

Commodities are defined by goods or services in near perpetual, universal demand. Like financial services, oil, and network access (and increasingly, internet search and water, both vital ingredients for life as we know it in Silicon Valley).

In my view, computing is also a commodity - as is storage and networking. They're all in demand globally - and the market's growing (especially in the developing world).

Now, companies that do well in commodity markets don't do so exclusively on price. They differentiate via R&D. In fact, the industries I mention above are among the world's largest investors in R&D - oil companies, banks, telcos and network service companies all have mammoth technology budgets. As does the technology industry (at Sun, we invest nearly $2,000,000,000 (billion) a year on R&D).

Why do we invest? To differentiate, of course.

So when we announce (via this webcast) the fastest microprocessor the industry's ever seen (the benchmarks are staggering) - and say we're entering the "commodity microprocessor market," what does it really mean? It means we're no longer limiting ourselves to serving an internal market, inside Sun. Instead, we're opening ourselves up to the broadest market possible - where the opportunity's largest.

Despite having what's arguably the single biggest competitive advantage our systems business has ever had, we've separated out our microelectronics business - and told them to win on the open market, as well. We signed our first OEM agreement with Marvell, through which we'll be collaborating to take our networking advancements to the marketplace. More broadly, our microelectronics team is free to sell to our competition. For the record, we'd be thrilled to supply, for example, a Niagara blade to HP or IBM for their blade servers - as well as to the larger market of networking, storage, automotive and industrial applications. It's a commodity market, after all - vast, growing, and in search of differentiation.

You'll recall we followed this path with our software business - decoupling Solaris from its exclusive focus on Sun hardware. That experience validated the obvious: the market for Sun's innovation is always larger outside of Sun, than inside. When we opened ourselves to the market, our business grew faster (Software grew 13%, year over year, faster than Sun overall). Now we're following that path with our microelectronics business.

To add fuel to the fire, the blueprints for our UltraSPARC T2 (I personally like the moniker, "Niagara 2" - named after Niagara Falls, btw, and the great volumes of water that pass over them), the core design files and test suites, will be available to the open source community, via its most popular license: the GPL. Making Niagara 2 the only commodity silicon whose core designs are available to the open source community - whose strength, and market power, only grows by the day.

These are all huge changes to our business. Driven by a simple philosophy: the open market is bigger than any internal one. But ultimately, why now? A simple reason: because customers building infrastructure for the internet have been asking us to do so. And they've all basically said the same thing - in building their own internet infrastructure, from telecom equipment to consumer devices, they want commodity economics without commodity performance.

Stay tuned for more details.

In the interim, on Monday a reporter accidentally violated our news embargo, which set off a flurry of press coverage. I have to admit my favorite part of the day was reading a quote from a few of our (hopefully erstwhile) competitors - who referred to the internet as a "niche." Hmm...

Posted on 08:30AM Aug 07, 2007 | Comments[48]

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