A Jolt of Java
Sun Microsystems' boy wonder grows up and even makes peace with Microsoft
Cash on hand. McNealy's comeback strategy isn't limited to the research lab, of course--he has been working boardrooms, too. Last week, Sun and Oracle announced a 10-year agreement to continue using each other's products. That follows a splashy press conference this fall in which Sun and Google, whose CEO, Eric Schmidt, was the chief technology officer at Sun until 1997, promised to collaborate on unnamed, future projects. Along with a handful of smaller acquisitions this year, Sun purchased StorageTek, a data-storage company, for $4.1 billion. The combined companies are now the fourth-largest data storage entity in the world--and, as McNealy is quick to point out, demonstrate that while Sun's bottom line has sagged, the company still has about $4.5 billion in cash on hand. "Sun is making all the right moves in a very aggressive fashion," says DiDio. "They've got some very good alliances here. If you've got a friend in Google, that's pretty good."
McNealy has made friends in some unlikely places, as well. In 2004, after two decades of mortal combat, Sun and Microsoft announced that they had signed a 10-year interoperability agreement that allows the companies to cross-license their products. For McNealy, who spent much of the '90s referring to Bill Gates as "Billy Big Bucks"and actively supporting the Justice Department's antitrust investigation of his rival, this was a stunning reversal. As part of the deal, Microsoft agreed to pay Sun $1.6 billion, and both companies put their antitrust struggles behind them. Experts see this as just more evidence of how dark Sun's prospects have been of late. "They were in a really bad way coming out of the dot-com era--they were losing billions and billions of dollars," says John Rymer, an analyst at Forrester Research. This, in other words, may have been the only way to stop the bleeding. In a rare, tight-lipped moment, McNealy demurs on the Microsoft question. "We're strong and respectful competitors--always have been,"he says, "but the food fight is over."
Freebie. Its new hardware and high-visibility partnerships notwithstanding, there is still one reason most analysts haven't put "buy" ratings on Sun. In the past year, Sun has moved toward open-sourcing for most of its enterprise software--meaning it will offer free access to the Java Enterprise System and Solaris 10 operating system that make its servers run. McNealy, for his part, argues that this is simply a return to Sun's roots--that the company, from its first workstations to its advancement of Java, has always supported nonproprietary, shared technology. He also says the products will eventually generate service revenue and expand the pool of developers who use Sun software. And, to be fair, there may be something to this: Since it was open-sourced in February, Solaris 10, the most recent version of Sun's operating system, has been downloaded 3
But industry analysts are still scratching their heads. "We're as perplexed as anybody else," says Richard Gardner, a research analyst at Citigroup. There is little doubt about why Sun is moving in this direction. "Linux has played Pac-Man with Sun's market share,"says DiDio. More and more of the company's servers are being shipped with Linux on them, and Sun is desperate to make its software stack as attractive as the competition's. Still, giving away an entire line of proprietary software is uncharted territory: "I just don't see how open-sourcing ultimately creates a wildly profitable business model for them," says Gardner.
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