Pioneer Press: Sun, Intel put aside differences in landmark deal

Sun Microsystems and Intel, two Silicon Valley giants that were once on testy terms, announced Monday that they will start promoting each others' technologies as part of a ``landmark alliance.''

Sun, the Santa Clara-based maker of computer servers and software, will start using Intel's new Xeon chips in its fast-growing line of x86 computer servers. In return, Santa Clara-based Intel, the world's largest computer chip maker, will endorse Sun's Solaris operating system and Java programming language. The two companies will collaborate on engineering, design and marketing.

Sun Microsystems and Intel, two Silicon Valley giants that were once on testy terms, announced Monday that they will start promoting each others' technologies as part of a ``landmark alliance.''

Sun, the Santa Clara-based maker of computer servers and software, will start using Intel's new Xeon chips in its fast-growing line of x86 computer servers. In return, Santa Clara-based Intel, the world's largest computer chip maker, will endorse Sun's Solaris operating system and Java programming language. The two companies will collaborate on engineering, design and marketing.

``Both companies have had some hard times and they've had executive changes,'' said Rob Enderle, analyst at the Enderle Group. ``Both companies seem less arrogant now and more willing to cooperate.''

Sun, which was hit hard by the dot-com crash, is still inching its way toward a profit again. And Intel has been surrendering market share over the past year as rival Advanced Micro Devices surged ahead with a better chip.

Dealing with those blows prodded this partnership, analysts said. Company executives added the alliance was also made possible by the departures of the companies' antagonistic chief executives -- Intel's former CEO Craig Barrett and Sun's former CEO Scott McNealy -- who each publicly ridiculed the other's company.

Intel's shares were down 3 cents to close at $20.79 on the Nasdaq Stock Market, while Sun shares slipped 2 cents to $5.75.

At the Monday press conference announcing the partnership, Jonathan Schwartz, who became Sun's chief executive in April, sat on a stage beside Intel's Chief Executive Paul Otellini, who has had the top job since May 2005. Schwartz looked up at the big screen displaying Sun and Intel's logos side by side and half-joked that it was an interesting sight to behold since no sparks were flying.

Shared views

``One of the first calls I made after I got my shiny new job was to call Paul and say, `What can we do together?' '' Schwartz said. The pair discussed that over dinner in August at Delfina, an Italian trattoria in San Francisco's Mission District. ``The more we talked, the more similarly we viewed the market, the more similarly we viewed the market opportunity,'' he said.

Until recently, Sun was a classic proprietary company focused on designing its own chip, the Sparc microprocessor, and the Solaris operating system -- which were ``basically diametrical technologies to what Intel was producing, which in those days were x86 and Windows,'' said John Fowler, Sun's executive vice president for the network systems group.

But about three years ago, when Schwartz became Sun's chief operating officer, the company shifted tack. It made Solaris an open-source technology, radically changed its microprocessor design, and looked harder at the x86 server market.

And Intel came out with the Core 2 Duo, which boasted two processors on a single chip and demanded Sun's attention.

All of that paved the way for another pair of Intel and Sun executives to meet in August 2005, which was the starting point of the alliance announced Monday.

Tim Bajarin, principal analyst at Campbell-based Creative Strategies, called the partnership ``a wise decision'' becuse some corporate customers buy only Intel-based servers. Sun's main competitors offer their customers a choice of Intel-based servers in addition to AMD-based servers.

Sun had been exclusively outfitting its x86 server line since spring 2005 with chips from Intel's rival, AMD, because they performed better.

But now, said Sun spokesman Mark Richardson, ``Intel has caught up to AMD in processor technology and the opportunity to expand the reach of Solaris were the keys to the partnership.''

Banc of America Securities analyst Sumit Dhanda estimates that Sun's Xeon-chip servers, which are scheduled to ship by the middle of this year, could bring Intel $25 million to $50 million in revenue in 2008. That's assuming the world's largest chip maker wrestles away 25 percent to 50 percent of Sun's x86 business from AMD.

Customer will decide

Richardson said Sun does not plan to divulge what percent of its servers use each kind of chip, but added ``customers will dictate what we develop going forward.''

AMD said it welcomed the intensified competition. ``As advocates for choice, AMD recognizes Sun's desire to provide the same for its customers,'' said Henri Richard, AMD's chief sales and marketing officer, in a statement.

``Today's announcement changes little, although it does help expand the market for Solaris on the x86 platform, which is good for us all.''

Dan Renouard, senior research analyst at Robert W. Baird & Co., said Sun's shift to using two chip suppliers is both a testament to the strength of Intel's new processor design and a savvy way for server makers to hedge their bets.

``Their view now is: Intel's got its act better again, and the way these guys leapfrog each other, it's better to ride both,'' Renouard said.

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