Sun, Intel Strike Win-Win Server Pact

Intel (Nasdaq: INTC) and Sun Microsystems (Nasdaq: JAVA) announced Monday that the two companies have joined to form a "broad strategic alliance."

The cornerstones of the newly created partnership are Intel's endorsement of Sun's Solaris operating system (OS) and the inclusion of Intel's Xeon processors in Sun's line of enterprise and telecommunications servers and workstations.

"We're excited about Intel's long-term Xeon road map and the performance we're seeing with Solaris and Sun Java on the Xeon platforms," stated Jonathan Schwartz, president and CEO of Sun Microsystems. "And Intel's endorsement for and agreement to OEM Solaris opens markets for both of us across the world. This is truly a landmark relationship for the industry."

Distribution for Endorsement

Under the new partnership, Intel has agreed to distribute and support the Solaris OS to its customers, while together both companies will work to increase the number of independent software vendors and system providers that provide the OS on Intel-based systems.

Intel will also endorse Java and Netbeans products and support the OpenSolaris and open Java communities.

For its part, Sun intends to offer a "comprehensive family of Intel-based uni-, dual- and multi-processor based servers and workstations running Solaris, Windows and Linux," the companies revealed in a statement.

The two companies will also "collaborate around greater than four processor scale-up systems optimized for the Solaris OS."

Pragmatic Solution

The Intel and Sun collaboration is a matter of pure pragmatism and a recognition that this is a buyer's market, Laura Didio, research fellow at Yankee Group, told TechNewsWorld. Since the dot-com bust, Sun's business model has seen significant erosion, losing a sizeable chunk of the company's market share in Solaris and the SPARC system to RedHat, Linux and open source.

"The problem was that Sun was an elite proprietary purchase, at a time when most people said it was best-of-breed versus good enough at an affordable price point," Didio said.

In an effort to end Sun's down slide, the company has done a 180 degree turn in their long- and short-term strategy, product suite and positioning. This change was evident, for example, when roughly 15 months ago the company made the Solaris OS free of charge in order to address the contraction in their core proprietary Unix-based market, Didio explained.

"No one was jumping off of Sun or abandoning the platform because they didn't think it was viable," she said. "It was pure economics. If you could get RedHat or Novell (Nasdaq: NOVL) SuSe Linux or any of those running on a commodity Intel platform, you could cut your hardware costs in half the first year."

Sun is following in the steps of Apple (Nasdaq: AAPL), Didio explained, when it switched to commodity-based Intel PCs. "That's were the market is," she said. "When you see Microsoft (Nasdaq: MSFT) and Novell getting into bed together, Apple embracing Intel and Sun and Intel together, it is a recognition that this is where the money is."

With 85 to 90 percent of the market, Intel was the logical choice for Sun to give their customers what they want -- top-flight performance at a very inexpensive commodity price point, Didio stated.

This is good for Intel, as well, because now they have everyone running their chips, she continued. Intel has broad, widespread appeal now. "It is an acknowledgment that Intel has the best chipset," she said "This is great for Sun and it's good for Intel, but at this point its even better for Sun."

Following the Money

Unlike the exponential growth during the 1980s and 1990s, currently everyone's market in the technology industry is under pressure, according to Didio. The proprietary business model that ruled during the industry's boom is no longer feasible.

Following the dot-com bust, companies put off any but the most necessary purchases between 2001 and 2005. Companies want best-of-breed products at bargain prices.

"What it's showing now is that everyone is willing to deal with everybody else to give the people what they want," Didio said. "They are following the money."

Under this new spirit of collaboration, depending on whether or not recent deals are exclusive, the industry could see deals between Apple and AMD (NYSE: AMD) or Sun and AMD a year from now.

"We will absolutely see more deals like this," Didio said.