From Computer Business Review, a sister publication
Bill Foster had a dream: To follow in the footsteps of his former boss and mentor David Packard and build a company with the same strong technology ethos as Hewlett-Packard (HP). Foster struck out on his own in 1979 to form fault-tolerant computer company Stratus Computer, with Packard’s words echoing in his head. We must always make a technical contribution – not drive for market share with products similar to the competition but make sure our products are innovative. A decade and a half on, the dream is proving difficult to sustain. After a heyday in the 1980s in which systems from Stratus and its rival Tandem Computers were fundamental for providing uninterruptible, high-performance computing, their competitive edge has been eroded and the lines of competition redrawn. Unix servers, mainframes and their associated data storage systems have become so reliable, that the market for Stratus’ fault-tolerant machines has contracted around those companies whose businesses absolutely depend on 100% uptime. But even that market is less willing to pay the kinds of premiums Stratus was able to charge for its technology in the past. Those new market realities are reflected in the company’s numbers. Revenues, at $587.9 million in 1995, were up just 2%, compared to a growth rate of 11% in 1991. And the 13% to 14% net margins that made Stratus one of the industry’s most profitable companies during the early 1990s, have now fallen to 7%. Seeking to reverse that trend, Foster and his new chief executive Gary Haroian (who took over day-to-day operations from Foster in January) have spent the past year putting in place a redrafted systems architecture and a wider market positioning. This has involved Stratus moving away from its traditional Motorola 68K processor range and its proprietary operating system VOS to embrace HP technology and Intel/Windows NT systems. For the high-end and midrange, Stratus is embracing the HP PA-7100 32-bit RISC chip. The first PA-RISC-based systems, known as Continuum 400, 600, and 1200, were launched last year with prices ranging from $98,000 to $890,000. These machines can run Stratus’ VOS proprietary operating system or its own FTX version of Unix. Significantly, the company has recently added support for HP’s HP-UX flavour of Unix. Stratus has also dropped its prices to the lowest in the [high-availability] industry, competitive with ‘failover’ entry level server configurations from Sun and IBM, says Haroian. The closeness to HP and the reliance on HP-sourced technology, say analysts, makes Stratus look like a maker of fault-tolerant clones of the HP 9000 server range. This product and corporate culture fit has led many to speculate that HP could be considering an acquisition of Stratus. But there is another part of the strategy. Like almost every vendor in the server market – including its rival Tandem – Stratus hopes to cash in on the explosive demand for servers running Microsoft’s NT operating system. Stratus intends to bring fault-tolerance to NT on Intel. But unlike Tandem, which is looking to base its NT systems on MIPS RISC processors, Stratus is hooked into the Intel/NT combination. Analyst and customer reports suggest that NT still lacks much of the scalability needed by high-end customers, so Stratus is applying clustering technology from its ISIS Distributed Systems subsidiary as a fix for that. The new line of NT systems, named Radio (Reliable Architecture for Distributed I/O), was rolled out in early 1996 at prices ranging from $63,000 to $110,000. Having product lines that draw on two separate chipsets is not necessarily a problem. HP and Intel plan to merge the PA-RISC and X86 chip architectures within two years. But already Stratus has seen its advantage as the sole supplier of high-availability Intel/NT systems wiped out. First, Tandem has licensed its super-scalable ServerNet I/O technology to Compaq. Second, Tandem has reversed its MIPS-only strategy, with news of an Intel-based line of NT servers. Finally, Tandem announced a deal with Microsoft to port the Tandem NonStop systems software, including clustering capabilities, to NT. There is, however, a separate diversification effort by Stratus which has shown a pay off. In 1992, the company started to ramp up its interests in software and services. It bought four companies which operated in its traditional vertical markets – Shared Financial Systems and SoftCom Systems (now combined at S2); TCAM, a consultancy operating in the financial securities market; and ISIS, a fault-tolerant systems software specialist. These businesses have grown strongly and, in 1995, brought in 35% of Stratus’ total revenues – though there are signs in recent quarters of a slowdown. Examining the company’s new strategy, several analysts are pessimistic. They are not going to fare very well, says Bob Tasker, research director at the Gartner group. [In Radio] they have a relatively high-priced product and, unlike Compaq, the Stratus machines are not tuned for NT. And the Compaq machines are almost fault-tolerant by themselves. The bottom line is that I don’t think [customers] need to pay the premium, Tasker concludes. But with the new product line up, Stratus’ bottom line is already looking healthier. Costs have come down dramatically as the company has sourced more technology externally and increased the proportion of revenues from indirect sales (15%-20% of revenues). Additionally, moves to cut the workforce by one fifth (500 jobs), made late last year, have also cut costs. That showed in the company’s financial performance for the quarter ending 31 March. Revenues climbed by 11% to $142.9 million, and net income rose from $6.4 million to $10.6 million. Most notably, hardware revenues grew by 17% and operating expenses, at 37% of revenues, were down by 9% from the previous year. We’ve made excellent progress in moving Stratus towards its historical levels of profitability, says Haroian. The transition away from VOS is also well underway. Although 80% of Stratus’ claimed installed base of 8,000 systems still use the VOS operating system, the company says that FTX Unix system sales now account for some 30% of revenues. Whether the new product strategy will allow it to sustain that position, especially as Tandem starts deliveries of its NT line up, depends on how well Foster and his team have applied the ‘technology superiority’ philosophy he picked up from David Packard
