Sun To Pilot R&D Away From 'Classic IT'

Sun Microsystems has redistributed its roughly $2 billion research and development budget to direct its most talented engineers and to fund new projects toward Internet-based computing and away from "classic IT," said Greg Papadopoulos, Sun's CTO and executive VP of R&D.

One outcome of the plan is that many of Sun's business customers, who emphasize IT cost cutting and integrating old computer systems, will become "uninteresting over time," Papadopoulos said.

Papadopoulos' remarks came two days after Sun said it would lay off 4,000 to 5,000 people, or 11% to 13% of its workforce, in order to trim $480 million to $590 million in annual costs. The layoffs followed a comprehensive review by the CTO of some 500 engineering projects at Sun requested by CEO Jonathan Schwartz, who took over as chief executive in April.

During remarks at a presentation at Sun's Menlo Park, Calif., campus, Papadopoulos said the company's R&D budget reflects how it sees the computer industry evolving in 18 months to two years. The fastest growing, most profitable segments of the market will be marked by very large systems containing multiple cores on a chip and running multiple threads in applications, run by "more sophisticated" customers. "If a systems company is valuable for anything, it's the ability to morph into the properties that are going to be important in the future," he said.

Today 80% to 90% of Sun's quarterly revenue--the company booked $3.2 billion in sales during its third quarter ended March 26--come from selling technology to what Papadopoulos called the "classic IT" market, characterized by integrating legacy systems, cutting operational costs through server consolidation, and complying with government regulations. But removing costs and consolidating servers means the "computing gets uninteresting over time," he said.

About 10% to 20% of Sun's revenues come from supplying products to power computing delivered as a service over the Internet, including to customers such as Salesforce.com. Future sales opportunities could include supplying computing to Google and other Internet companies, and for processing data from new sensor networks, Papadopoulos said. Sun has been trying to sell systems based on its new Niagara chip to Google, so far without success. The company is also targeting the fast-growing technical computing market in areas such as engineering simulations and financial analysis.

Papadopoulos declined to say how much Sun will spend on research and product development for each segment of the market, nor would he specify how many staffers would work on each. The company still has "a lot of people" working on hardware, software, and networking technologies for the traditional business technology market, he said. But it has moved "top people and new project starts" from addressing "IT as we know it" to "the new service providers...and getting on to those growth curves." As an example, he cited VP and Sun fellow Mark Tremblay, who works on chip technologies. "This is not some sort of last breath of innovation out of the company," Papadopoulos said, referring to the layoffs.

In an interview in late April, Papadopoulos said his engineering review would shift resources from technology for individual computers toward chip designs, operating systems, and networking technologies for many machines working in tandem. "You can't do that informally," he said.

During its third quarter, Sun lost $217 million, and the company hasn't forecast an operating profit for another year. The company's 2006 fiscal year ends June 30. Sun spent $1.8 billion on R&D during its 2005 fiscal year, and executives have said they will continue to spend about $2 billion annually on R&D.

Shares of Sun (Nasdaq: SUNW) fell 9 cents Friday to close at $4.46, their second consecutive day of decline since disclosing the new layoffs.