Sun Establishes OEM Business Unit

Published: February 9, 2006

by Timothy Prickett Morgan

Server and software maker Sun Microsystems announced this week that it will create a separate cross-divisional business unit dedicated to selling hardware and software on an OEM basis to partners. While Sun has sold its servers on an OEM basis for many years, and recent acquisition StorageTek has also fostered a fairly large OEM business, this is the first time that Sun has created a dedicated team to manage OEM sales and support.

According to Joe Heel, who was hired away from management consultancy McKinsey & Company to be the senior vice president of the OEM business unit, when you add all of Sun's OEM business up, it accounts for about $1.8 billion in sales and is actually growing at approximately 3 to 4 percent a year, unlike other Sun businesses, which are obviously in decline. (But, poised for a rebound or at least stabilization, perhaps, thanks to innovative new server products and the delivery of reasonable priced, decently performing UltraSparc-IV+ platforms.) About one-quarter of that OEM revenue comes from network equipment providers, who embed servers and other Sun gear in their network platforms, with another quarter coming from other system manufacturers (like Fujitsu-Siemens) who rebadge Sun gear. The remaining quarter is for a wide variety of hardware and software that is sold to companies in the healthcare, imaging and printing, and other industries. The StorageTek acquisition brought Sun about $250 million in net new OEM revenue, in fact, with about $120 million of that for products. (Sun acquired about $100 million in hardware from StorageTek a year prior to the acquisition, and was one of StorageTek's biggest customers.)

Now that Sun has set up an OEM business unit, Heel's job will be to push the envelope and move beyond pushing parts to pushing whole solutions. Not that Sun doesn't plan to push a lot of parts and use a dedicated sales force and support organization to gain new OEM business. Heel says that one of the complaints of existing OEM customers is that there was not a dedicated team at Sun to handle their needs. OEM customers have their own front-line tech support, and they do not want to have to go through regular customer support to get help; they want to escalate immediately to people who are acquainted deeply with the Sun technology. So Sun is fixing that. And it is also taking people from 20 different geographies who were responsible for the largest OEM accounts and making them a dedicated sales team to serve all OEM customers on a global basis. Now, an expert sales person doesn't focus on a service provider in California or a telecom switch maker in Sweden, but rather on all customers in a sector on a global basis.

Heel says that Sun will peddle its chips, its traditional hardware (including Sparc, Opteron, and Netra servers), and StorageTek hardware through the OEM unit, as well as its software stack. But going forward, Sun wants to expand and aggregate hardware and software and add value through integration for specific customers in precise industries. Many of Sun's OEM customers have hundreds of engineers doing this integration now, and basically, Sun wants to help eliminate their jobs. The idea is that those engineers should be focusing on the OEM's own applications and stop messing around with integrating hardware and software.