Earth to Sun: Wrong Place, Wrong Internet Time

by | Aug 30, 2001 | Environment

Once upon a time there was a company that made very powerful workstations — super-duper PC’s that put the final nail in the coffin of the mainframe computing model. This company developed servers that treated these workstations as clients, and linked them together in networks. This company, Sun Microsystems, built itself on the notion that […]

Once upon a time there was a company that made very powerful workstations — super-duper PC’s that put the final nail in the coffin of the mainframe computing model. This company developed servers that treated these workstations as clients, and linked them together in networks.

This company, Sun Microsystems, built itself on the notion that “the network is the computer.” That was a big idea in the late 1980s and early 1990s, and it helped Sun slightly differentiate itself from an otherwise identical pack of hardware hawkers.

But then Sun won the lottery. Their big idea became a huge idea. Because this network that is the computer turned out the be the network of networks — the Internet. And Sun found itself in the right place at the right time: the technology leader in servers, the product that literally every participant in the Internet revolution had to have to get online.

And all of a sudden this hardware manufacturer — this box maker for chrissakes — is at the center of the universe.

But now Sun is in the wrong place, because everyone’s got about twice as many servers as they need right now as the growth of the the Internet, and the adoption of e-services, slows. And Sun is in the wrong time, too, because the Internet depression has happened so rapidly — on Internet-time, of course — that the redundant Sun servers in customers’ hands haven’t had time to obsolesce yet. So as e-businesses and dotcoms downsize or go under, thousands of pre-owned, like-new, state-of-the-art, still-under-warranty Sun servers are hitting the secondary market. Sun has to compete with its own customers to make a sale now.

Oh, they’re trying to put a brave face on it. In Sun’s mid-quarter update last night they started out grunting like a gorilla, talking about how they “are here to build a company for the benefit of our long term shareholders. To that end, we are consciously willing to sacrifice maximization of near term earnings to protect key investments; we will continue to develop the technologies and competencies that will get us to our long term goal.” Cool. I wish Cisco would talk like that.

But as soon as all the chest-beating was over, they quickly admitted that they weren’t going to hit any of the targets they set for themselves at their last quarterly report just six weeks ago. And they all but came out and said that they would show a loss for the current quarter, saying that their forecast revenues might, just might mind you, be a little below their breakeven point. And in response to an analyst’s question, they admitted that inventories hadn’t reduced one bit over the last six weeks. The analyst didn’t have the heart to ask them whether they were talking about their own inventories, or their customers’ inventories being auctioned on Ebay.

I’ve been saying that this call would be nasty, but I had no idea it would be this bad. But I suppose I should have known, because I’m in the Sun server inventory business myself as I unwind my busted dotcom, MetaMarkets. I’ve got a co-lo cage in Salt Lake City full of the prettiest boxes Sun has ever made, so brand spanking new you can still smell the packing peanuts. I paid a million dollars for them. What am I bid? Shall we start at 5 cents on the dollar? Or would you rather call your Sun rep and buy the same thing from him? Your call…

Operators are standing by.

The views expressed within represent those of the author, and do not necessarily reflect those of Capitalism Magazine’s publishers.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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