Sun hopes govt. unit makeover refreshes biz

Sun Microsystems Inc.

Headquarters: Santa Clara, Calif.

Chairman and CEO: Scott McNealy

Head of Sun Microsystems Federal Inc.: Clark Masters

2004 revenue: $11.2 billion (for year ended June 30, 2004)

2004 net loss: $388 million (for year ended June 30, 2004)

Employees: 35,000

U.S. federal unit employees: 1,000

Lines of business: Unix servers for corporate and government computing networks; workstation computers; data storage systems; operating systems

Major U.S. federal customers: Defense Department, intelligence agencies, civilian agencies, state and local governments

www.sun.com

From left, John Marselle, Marie O'Brien and Clark Masters will head Sun Microsystems' newly created global government unit

Rick Steele

Sun Microsystems Inc. is retooling its global government business with new leadership and a new structure to chase growing opportunities in systems modernization, information sharing and secure networks.

The reorganization took effect July 1, the beginning of the company's fiscal year.

"We want to focus around our areas of strength, and our one area of strength is the government," said Clark Masters, president of Sun Microsystems Federal Inc. and executive vice president of the newly created global government unit. He took on those roles several months before the restructuring.

The Santa Clara, Calif., company is known for its high-end workstations, servers and networking equipment. Major government customers include the Defense Department and intelligence agencies.

Although Sun does not break down its revenue by sector, the global government market is one of its three major business areas along with telecommunications and financial services, Masters said.

Sun posted revenue of nearly $11.2 billion in 2004 with a net loss of $388 million.

The company reorganized its federal unit in part to take advantage of the U.S. government's spending trends, Sun Federal executives said. Sun's moves also likely were driven by a need to regain business it has lost in recent years, said Mark Stahlman, technology strategist and senior vice president of computer system technology at Caris & Co., a New York investment bank.

The decline for Sun and other networking companies is a result of the U.S. federal government's change in priorities with the 2004 presidential elections, increased spending on the Iraq conflict, appointment of a new national intelligence director and a new budget cycle, Stahlman said.

As part of the revamping, Masters named John Marselle, Sun's vice president of U.S. government strategic sales and general contracting, to the new position of chief operating officer. Marselle formerly was Sun's vice president of the Americas, the company's largest operating unit, and was president of Sun Microsystems Federal Inc. from 1992 to 1998.

The company also expects the recent acquisition of Storage Technology Corp., a new product launch and an agreement with competitor IBM Corp. will bode well for its federal sales, company executives said.

Sun officials refused to name specific contracts they would pursue.

Several different groups have been pulled together to strengthen the federal division, so that it encompasses sales, professional services, delivery services, contract and program management and technology direction, Masters said.

"The entire function of our company is in this organization, and that's new," Masters said. Sun Federal's unit in the United States comprises roughly 1,000 of the company's 35,000-strong global workforce. Sun will continue to hire employees with security clearances in the United States, he said, but he did not provide specifics about the workforce increase.

Sun's $4.1 billion acquisition last month of Storage Technology, called StorageTek, will give it a stronger position in the managed storage market and let it offer a broader range of products, services and solutions for securely managing mission-critical data assets, according to IT research firm Current Analysis Inc., Sterling, Va. StorageTek provides data storage systems and network management for companies and government agencies.

The acquisition lets Sun move away from its concentration in defense and intelligence markets and diversify its business among federal civilian agencies, Stahlman said.

Sun also is gearing up the launch of its Galaxy series of servers, which it believes will boost federal sector sales as well, he said. Galaxy is built around the dual-core Opteron microprocessor from Advanced Micro Devices Inc., Sunnyvale, Calif. The Galaxy server can replace several smaller Linux systems that are deployed throughout federal government agencies and will need to be replaced soon.

Stahlman said he expects Sun to announce the new server systems later this month or in early August, with the first shipments in September.

Sun also recently reached an agreement with IBM for that company to convert its software products to run on Sun's Solaris system on the new Galaxy line of Sun computers. IBM previously agreed to make its software available for Sun's Sparc system, but now the company will make the software available on Solaris and the X86 offering, Masters said. This will create more opportunities in the federal government, he added.

The Galaxy launch spurred the IBM endorsement because Big Blue lacks an equivalent to the system for its own clients, Stahlman said.

"IBM did a smart thing and said, 'If you can't beat them, join them,' " he said.

"Sun is a substantially different company today than it was a year or two ago," Stahlman said, noting that the Sun Federal reorganization is part of the company's broader reorganization efforts. "They have put themselves back in the game after being out of the game."

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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