Sun Microsystems Suddenly Sees The Light

Busy keeping up with demand for its flashy Unix-based workstations, Sun Microsystems Inc. used to treat network servers as an afterthought. "We used to build a workstation, cut its head off, and call it a server," admits Sun Vice-President Anil Gadre. As a result, competitors such as Auspex Systems Inc. and Solbourne Computer Inc., with servers specially designed for workstations, began winning high-profit sales at Sun's largest customers. Last year, Auspex' sales quadrupled, to about $55 million.

But now, Sun is pushing the servers with the fervor of a convert. Last September, it introduced models that combine as many as four of its Sparc microprocessors. And in April, it brought out smaller machines to compete with "superservers" in PC networks.

PRICE WAR. Sun has big ambitions in servers. They could help it bust out of its traditional engineering markets and sell more workstation networks to banks and other mainframe-oriented enterprises. Besides, servers are more profitable than workstations. Analyst Barry F. Willman of Sanford C. Bernstein & Co. figures that Sun gets 55% gross margins on servers vs. 47% on workstations--a gap that will widen as the workstation price war intensifies. Competition from IBM, Hewlett-Packard, and Digital Equipment helped lower Sun's earnings 43%, to $37.7 million, in its fourth quarter, ended June 30.

So far, Sun's new push has paid off. It has sold 5,500 new servers and upgrades on older ones since last September--more than any of its direct competitors. Some of that gear helped conquer new markets. Canadian beer distributor Brewers Retail Inc., for instance, recently moved work from a mainframe to Sun servers.

The startups aren't doing so badly, either, though. Auspex has even signed up IBM and Digital Equipment Corp. to resell its servers. Overall, sales of computers for use as servers running American Telephone & Telegraph Co.'s Unix operating software--a standard among workstations--will grow from $1.3 billion in 1991 to $4 billion in 1996, predicts market researcher International Data Corp. That's a market that any computer maker might like to serve.

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