Weekly interest and loan rates | Northwest stock contest 2003 Tax tips | Consumer affairs | Home values

Comdex 2003: Sun Microsystems sets new, aggressive strategy

By Kim Peterson
Seattle Times technology reporter

E-mail this article Print this article Search archive Related stories Comdex a shadow of itself

LAS VEGAS — Sun Microsystems Chief Executive Scott McNealy seems to enjoy his company's underdog status, and often makes jabs at larger rivals like Dell and Microsoft with relish.

But in a speech yesterday at the Comdex trade show, McNealy announced that the company was taking steps aimed at cutting into the dominance of those competitors, including forming software partnerships with large governments like the People's Republic of China.

He also unveiled company plans to build Sun Fire servers next year with AMD's new 64-bit Opteron processor chip, which can handle 32-bit computing as well as the faster and more advanced 64-bit technology. The servers would be affordable for business customers, Sun said, but the company did not announce a price.

"We're the first rock-and-roll enterprise application on top of Opteron," McNealy said at a news conference after his speech. "We nailed this one on the button."

It is unclear whether the announcements will serve to boost Suns' fortunes. The Silicon Valley company is struggling to maintain its customer base and compete with rivals that seem to be growing larger and stronger.

Sun's quarterly revenue has fallen for more than two years straight. The company reported a net loss for the quarter ended Sept. 28 that more than doubled from a year ago, to $286 million.

Investors appeared unimpressed by the news yesterday. Sun's share price dropped 2 cents on below-average trading volume to close at $4.08.

But the announcements seem to reflect a new strategy for Sun, particularly its plans to lure foreign governments into technology partnerships.

"We're out calling on every ministry of (information technology) on the planet," McNealy said. "So stay tuned. There should be some more interesting data there."

Sun is trying to capitalize on an obvious opportunity, one that has become more attractive lately as governments from Germany to Brazil search for software systems that are less expensive and more open.

Last week, computer-industry groups in Japan, South Korea and China said they will encourage their governments to use open-source operating systems such as Linux — systems created as a grass-roots effort and available free — instead of proprietary software such as Microsoft Windows.

Sun said yesterday it is the preferred technology partner for China Standard Software, a government-supported company formed to deliver a desktop system to China based on Linux technology.

China Standard Software will develop its own branded desktop products using Sun's Java Desktop System as the foundation. Java Desktop is a new, low-cost computing environment designed to run on the Solaris or Linux operating systems. It costs $100 per desktop user.

The Chinese government plans to install at least 200 million copies of Java Desktop throughout the country, starting with a rollout of 500,000 to 1 million next year, according to Sun. Terms were not disclosed, although executives described it as a financial win.

"Put any round figure in there, and it's going to look good for Sun's bottom line," said Peder Ulander, director of marketing with Sun's desktop-solutions team.

The agreement with China, expected to start at the end of this year, is the first step in a move to partner with every nation, Sun said.

The news is significant for the company, said Dana Gardner, a senior analyst with the Yankee Group.

"It's a lot easier to sell to a whole country vis-a-vis a government than it is to go company by company and house by house," he said. "It's a very interesting way to approach a market."

A successful partnership with China could lead to Sun deals with other countries, Gardner said.

"If you can set a de facto standard in China, then you could go to Mexico or any number of South American or Eastern European countries," he said. "You have a good story to tell."

Ulander said Sun is talking with other countries but would not identify them. The China agreement "is a tipping deal" for partnerships with other countries, he said.

Although McNealy announced the China deal during his keynote, he spent much more time talking about the partnership with AMD. McNealy and AMD Chief Executive Hector Ruiz showed off an Opteron server system onstage but only revealed one side. The rest of the machine stayed under wraps.

"This is just going to be a screamin' hot box," McNealy said.

The alliance is expected to give both companies more leverage in competing with larger rivals, including chip-making giant Intel, in AMD's case, and computer maker Dell in Sun's.

The move is likely to attract attention of IBM, which said earlier this year it would use the Opteron chip.

"Sun can use AMD's Opteron to compete directly against IBM in the head-to-head Opteron battle" for price-conscious buyers of high-performance computers, said Peter Kastner, an analyst with The Aberdeen Group.

Perhaps more significant for Sun, he said, is that the company's move also diversifies its product offerings, which could help retain its customer base. Without those customers, Sun doesn't stand much of a chance, Kastner said.

McNealy said Sun will begin shipping "early access" Sun Fire machines to developers and software and hardware partners this year. He didn't disclose many details about the new system but said Sun was investing heavily in developing the product.

"I don't know any other company that is spending more money and is more focused on doing the right thing long term," he said.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2003 The Seattle Times Company