Don't Count Sun OutDon't Count Sun Out

Such interoperability will be key for the new set of customers Sun is courting. Companies in these markets need combinations of smaller, more-modular servers and high-end gear, and help managing the mishmash of IT equipment that resulted from the '90s buying spree.

Sun spent nearly 16% of revenue on research and development during its first quarter ended Sept. 29, and McNealy says that percentage will rise in coming years. Sun is using its $5.2 billion in cash and marketable securities to make acquisitions to build its product line. Last week, Sun bought Terraspring, a maker of infrastructure-management software; earlier this year it bought Pirus Networks, a maker of switches for data-storage networks, and Afara WebSystems, which makes technology for putting multiple processor cores on one chip. All will become part of N1. "What we're presenting to the customer is less the components and more the server complex assembled," McNealy says.

Since Internet apps touch lots of points in an IT infrastructure and more frequently communicate via fast I/O technologies such as Gigabit Ethernet and InfiniBand, Sun says its new software could do for customers' networks what Solaris did for computers: make them more scalable, reliable, and manageable. "What we're building with N1 is an operating system for the network," says Steve MacKay, the Sun VP running the N1 project. Next month, Sun plans to release the N1 virtualization engine. It uses preprogrammed models of computers, disk drives, storage networks, and communications gear to help customers understand which devices are connected in logical pools of computing power, MacKay says. That will make it easier to deploy apps to meet peak demand.

That could be useful as companies hook more suppliers into their applications, says Brad Mohs, chief technology officer at car-buying site AutoTrader.com LLC. "We haven't needed to operate that way today," he says. "That's bound to change."

Trouble is, HP and IBM have similar strategies. IBM will spend up to $10 billion to develop computing-on-demand technologies and build grid-computing standards into products. HP will start selling its Adaptive Management Platform, which melds the capabilities of its OpenView systems-management software with its Utility Data Center offering.

Sun has to get its message out. N1 product sales will be tied closely to services; the technology is "not for amateurs," MacKay says. That scares some customers. "Sun makes great hardware and operating systems," but falls down on sales support and software, says Timothy Hernandez, an IS operations manager at R.L. Polk & Co., which sells consumer-product reports.

Sun needs to change that if it's going to reverse its slide. McNealy thinks he understands what will be needed to do so. "I've always been a little bit ahead, I think," he says. The future of Sun may depend on it.