Harsh reality drives Sun pact with rival Microsoft

12 Apr 2004

The recent entente between long-time rivals Sun and Microsoft has its roots in new competitive realities facing both firms, according to analysis from Gartner. Meanwhile IDC called the settlement a “watershed” but said ultimately that it was a pragmatic move by the IT giants.

On 2 April, Microsoft and Sun announced a settlement to pending intellectual property and antitrust litigation, with a broad 10-year collaboration agreement that involved the Redmond software giant pay Sun US$1.95bn. The companies will also pay royalties to use each other’s software.

Gartner said that the agreement should bring benefits to both vendors. The deal has its origins in Sun’s product revenue decline; its losses for the next quarter have been projected at US$750m – US$810m. Sun’s expensive, proprietary midrange systems have also been under attack from lower-cost servers based on the Intel architecture.

The industry watcher also cited the recent EU antitrust ruling as a factor in pushing Microsoft towards giving competitors more technical information on servers and desktops. Both companies have also been feeling the heat from the open source operating system Linux, which is backed by powerful IBM and which has been affecting revenue opportunities for Sun and Microsoft.

George Weiss of Gartner Research said: “The result is that Solaris/SPARC [Sun’s operating system and processor type] is no longer a sufficient growth vehicle for Sun, especially since the company’s platforms are dividing into two separate classes. Sun’s volume products on standard x86 hardware demand completely different ecosystem strategies from the complex configurations for high-end systems that traditionally run Solaris on SPARC. In this environment, the new collaboration could enhance Sun’s and Microsoft’s competitiveness against IBM and Linux.”

Sun and Microsoft can now collaborate on server interoperability, Weiss suggested. This would result in more acceptance of Solaris and Java in businesses that run both Unix and Windows systems where a resistance to fully embrace Linux remains.

“Microsoft will benefit from Sun’s diminished antagonism toward Windows, which will lead some enterprises that are now uncertain about the role of Linux to reconsider their strategic open-source software directions,” said Weiss.

“Sun’s and Microsoft’s customers should not expect to realise significant benefits from this collaboration agreement in the short term [before 2005], because it will likely not have a major impact without changes in the two companies’ strategies,” Weiss added.

IDC’s view is that the move will help to reconcile much software development work within business, but again, the results will not be immediate. “Across the industry, developers have been forced to decide if they would be part of the .NET camp or the Java camp. This announcement helps build a bridge between these two deep reservoirs of technology – including application development and enterprise server technology – although software engineers from both companies will be fortifying the initial ‘bridge’ that covers the technology gap for many years to come.”

IDC also identified Linux as a common point of attack for Microsoft and Sun, observing that much of the agreement has an emphasis on intellectual property.

The deal also solves some problems unique to each company, IDC said. “Both companies needed to ‘clear the decks’ of legal and monetary issues to prepare for the next wave of IT spending, expected to take place in 2004 and 2005. Sun is working to restructure the company to return it to profitability, following nearly two years of unprofitable quarters… and it will benefit from the US$1.6bn it receives as a result of this agreement. For Microsoft, the agreement creates a different atmosphere as it appeals its US$600m-plus fine imposed by a recent EU decision for anticompetitive practices.”

The analyst firm also remarked that the very vocal rivalry between the two camps disguised a more prosaic commercial reality. “IDC research shows that most large IT organisations have deployed both types of technologies – and that both Sun and Microsoft software are deeply ingrained within corporate networks and on the internet. After spending much of the Nineties sparring with one another, Sun and Microsoft have decided that it is better to co-operate on behalf of their mutual customers as the next generation of IT infrastructure gets built.”

By Gordon Smith