Sun`s star rising in Africa

The sub-Saharan operation has grown revenues to two and a half times more than they were just three years ago, even as Sun Microsystems reported a loss for 2002 on revenues that slid by nearly a third. Strong growth in South Africa is made even more remarkable by the fact that Sun had no presence in the country at all before opening its subsidiary in 1994.

Stefano Mattiello, previously MD of Sun Microsystems SA, was last year appointed MD for sub-Saharan Africa and now carries responsibility for some 43 countries. Appointed as a country manager, Mattiello now has the status of a regional director, reflecting the growing importance of the subsidiary within Sun`s business.

“It`s a logical move as it is easier to service Africa logistically from South Africa than from Europe. Countries in the region also find that conducting business, and obtaining support and products is much easier, as we all now fall in the same time zone,” says Mattiello.

“We used to be pretty insignificant in the global organisation, but we are now showing a very healthy return because we deliver dollars and spend rands,” he adds. “While the European and American markets still feel the fallout from the rush to 3G cellular networks and the implosion of the dot com market, Africa is still investing in infrastructure.”

Sun Microsystems has found ways of making the relatively weak currency work in its favour. Around two years ago, the technology group invested $500 000 in establishing a technical development centre near its Midrand offices to serve as its partner training hub for the Middle East and Africa.

Since then, the centre has also hosted trainees from other regions such as Eastern Europe because it offers cost-effective official training in Sun technologies. “It`s often cheaper to fly someone out here from Eastern Europe and let them stay in a nearby hotel than it is to send them to London or Paris for training,” says Mattiello.

The Fedex box drop

Mattiello attributes Sun`s strength in the local market to a management team at EMEA headquarters in Geneva that is sympathetic to the needs of its international subsidiaries. He says he is given the freedom to execute on his mandate and on Sun`s global strategies without needing to battle through the bureaucracy that characterises many large multinational companies.

“We don`t tie ourselves down with red tape. A lot of organisations like to hide themselves behind hierarchy, and that makes people who don`t have jobs to do feel comfortable,” says Mattiello, who evidently relishes Sun`s fiercely competitive but informal and flexible corporate culture.

In line with its global strategy, Sun uses a network of business partners to reach its customers in sub-Saharan Africa. South African partners include the likes of ICL, Arivia.kom, Comparex Africa and black empowerment firm Orcom. This approach has allowed Sun to rapidly build critical mass in the local market by drawing on the skills and customer relationships its resellers already have in place, as well as build a coherent empowerment policy focused on creating a base of black-owned resellers, says Mattiello.

“We don`t want resellers, we want business partners who can sell solutions that include valued-add such as applications and services. I can get Fedex to drop off boxes,” says Mattiello.

“Although we maintain relationships with our customers, we don`t compete with the channel at all and rely on business partners for first-line support, installation and pre-sales. When we say we are a technical support and marketing office, we mean literally that.”

That approach has paid off in a market where many of Sun`s rivals have adopted hybrid direct/indirect strategies that confuse customers and end-users alike. According to BMI-TechKnowledge, Sun took the top spot in the systems and server market, measured by revenue, for the full calendar year of 2001; it was followed by Compaq, HP and IBM.

The company held around 80 percent of the high-end Unix market, 47 percent of the mid-range Unix market and 45 percent of the entry-level space. Customers include most of the major telecoms operators, Internet service providers and financial services firms in the country. Sun made these inroads into the market during a period when the rand was at its weakest and the high-end server market was in decline.

The latest international market share figures, however, paint a different picture to the one in South Africa. According to IDC`s final numbers for the third quarter of 2002, Sun has fallen to number two behind in the HP in the overall Unix market. IBM holds the top spot in the overall server market. Even worse news for Sun is that the international Unix market continues to decline as Windows and Linux continue to gather steam.

No to Intel

Sun Microsystems continues to plot a stubbornly contrary course for the future, even as it faces hotter competition from a merged HP/Compaq and all its major rivals embrace Intel`s Itanium architecture and alternative operating systems such as Linux.

In the face of these shifts in the market, Sun remains committed to developing its own Solaris operating system and Sparc processor architecture in line with a strategy that has served the company well throughout its history.

If Matiello is worried about the changes in the competitive landscape, he does a good job of hiding it behind the kind of bravado that Sun, and particularly its CEO Scott McNealy, are well known for.

“HP and Compaq`s merger has pushed up their market share, but everywhere where we are up against them for new business we kick their butts. They don`t know if they want to sell PCs or digital cameras or printers or enterprise servers,” says Matiello.

He is equally dismissive of Intel`s plans to muscle into the high-end server market with its Itanium 64-bit processor family, which the chip giant co-developed with HP in hopes of offering customers high-performance server processor architecture at a near-commodity price.

“We will not have an Intel strategy because that is not where our focus lies. We have to service the customers, not the analysts, and we do so by spending around $2 billion a year on R&D. Today, Itanium is nowhere near Sparc in terms of its performance,” says Matiello.

Sun has embraced Linux as an alternative to Unix, and more particularly Windows, at the low end of the server market, albeit belatedly and reluctantly. The decision came only after it became clear that the open-source operating system had reached critical mass in the low-end server market, particularly Internet applications such as firewalls and caching.

“Linux is not ready for the data centre. It is, however, a good 32-bit commodity operating system for workgroup and network edge applications,” says Mattiello.

Sun claims its focus on a single environment presents customers with a range of products that are easier and cheaper to administer than the offerings of many of its rivals. However, such an approach worries some customers who live in a world where their data centres are built from a patchwork of technologies ranging from Unix boxes and legacy mainframes through to newer Windows/Intel and Linux servers.

Honing in on TCO

Sun`s current strategy hones in on reducing total cost of ownership [TCO] in the IT environment, something which is close to the hearts of most of its customers at the moment. It is focusing heavily on developing technologies – such as grid computing and resource virtualisation – that are meant to help customers use their IT infrastructure to its fullest potential and manage their computer systems more effectively.

One such initiative is the N1 architecture, which is supposed allow IT managers to manage their data centres as an integrated whole, thereby reducing the complexity and increasing the flexibility of the IT infrastructure. N1 allows companies to unify heterogeneous resources into pools that can be shared among applications [virtualisation] and deliver automated, policy-driven IT services.

Sun still faces a tough international market, although it has taken some steps to increase revenues from storage and software in a bid to weather the storm. Only time will tell whether the company`s fiercely independent approach to business will pay off.