WinInfo Daily UPDATE, April 5, 2004

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In the News

- Microsoft, Sun Alliance Signals End to Decade-Long Fear and Loathing

==== In the News ====

by Paul Thurrott, [email protected]

Microsoft, Sun Alliance Signals End to Decade-Long Fear and Loathing

Some people say that only Richard Nixon could have gone to China, but whether a similar quote will evolve about former Sun Microsystems CEO Scott McNealy and his unexpected, blockbuster deal with former archrival Microsoft remains to be seen. If you aren't familiar with McNealy's relationship with Microsoft, let me summarize: If his numerous Microsoft jibes during the years are any indication, the man could have had a career as a standup comedian.
During a press conference held Friday, however, McNealy buried the hatchet and practically embraced Microsoft CEO Steve Ballmer. If a stranger public pairing of computer-industry executives ever took place, I certainly didn't see it. The two men laughed, joked, and even exchanged hockey jerseys in a display of camaraderie that belied the tense relationship the two computing giants have shared for the past decade.
"This \[agreement\] puts peace on the table in a big way," McNealy said. "Maybe we've grown up, and maybe they've grown up." Maybe. But this McNealy is the same man who once referred to Ballmer and Microsoft Chairman and Chief Software Architect Bill Gates as "Ballmer and Butthead." Over the years, McNealy has unleashed an amazing collection of unflattering but often humorous names for Microsoft employees, products, and technologies, including "Captive Directory" (Active Directory--AD), "Wince" (Windows CE), "Windows More Errors" (Windows Me), "Look Out" (Microsoft Office Outlook), "Dot Not" (Microsoft .NET), "Hairball" (Windows products), and "Darth Vader" (Gates). He's referred to Microsoft as "the evil empire."
McNealy planted the seed for last week's agreement in June, when he called Ballmer, an old friend from Detroit, and suggested a truce. "I just said, 'Hey, Steve, why don't we get together and play golf...pick a date, and let's do it,'" McNealy said. The two did play golf--four rounds, according to McNealy--and settled their differences. Since then, the two companies have been hammering out an agreement they could both live with.
For Sun, the Microsoft agreement comes at an auspicious time. Since Sun rode the dot-com wave to record earnings, the company's financials have headed south as customers have dwindled and the demand for the company's high-priced UNIX-based servers has fallen victim to low-priced PC-based servers running Linux and Windows. Microsoft's payment of $1.6 billion will help Sun's situation a bit, but in a separate announcement Sun said that it plans to lay off 3300 employees (about 9 percent of its workforce) in a bid to lower costs. The company also announced that it will post a loss of $750 million to $810 million--more than analysts had expected--for the quarter that ended March 31. Sun's stock has been trading at less than $5, a pittance for such a large company. The new Sun that's starting to emerge will likely be a smaller company than the industry juggernaut of the dot-com boom.
Regardless of its size, Sun will be a changed company. McNealy stepped out of the CEO and president roles (he remains chairman), ceding them to Jonathan Schwartz, who has vowed to adopt a software-based strategy for the company. That move might mean less reliance on proprietary UNIX hardware and more emphasis on AMD Opteron- and Intel-based equipment.
As for Microsoft, the company says that it will continue to compete with Sun in the server space, even while cooperating in certain areas and sharing technologies. The relationship is now healthier, Microsoft noted. "We're going to compete--no question," Ballmer said. "I'm not going to do it today, but later I'll tell you why I think our products are better."

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