Bill Snyder

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Sun's McNealy Wants to Break Windows

Bill Snyder

Military commanders and most corporate executives believe in striking where the enemy is weak. Not Scott McNealy, the combative CEO of struggling Sun Microsystems(SUNW Quote). On Monday, McNealy used the pulpit of Comdex, the PC world's premier trade show, to attack Microsoft (MSFT Quote) where it is strongest -- the desktop.

McNealy announced the Java Desktop System, a "major initiative" to lower the cost of computing by selling a combined operating system and office productivity suite for as little as $50 in the U.S. and even cheaper abroad. A comparable Windows package could run anywhere from $200 to $500 or more depending on license agreements.

"There's massive interest in an alternative to Microsoft," Jonathan Schwartz, executive vice president of Sun's software group, said during a meeting with reporters last week, during which McNealy's plans were outlined. That may be so, but there seems to be little agreement that the company's latest tilt at Microsoft's main franchise will be especially successful.

Speaking informally, one Sun executive put it this way: "Sure we'll get a skeptical reception. How will we change it? We'll show you guys a major deployment."

On Monday, Sun did just that.

Sun has signed an agreement with a government-sponsored consortium in China to supply the Java Desktop System to government offices, schools and consumers. Sun expects to ship 500,000 to 1 million units next year, and hopes to ship as many as 200 million within five years, said Peder Ulander, a Sun marketing director.

Moreover, Sun's timing on the desktop initiative is good. Microsoft has gotten repeated black eyes as hackers find one security hole after another in Windows and customers are not happy about Microsoft's restrictive licensing and high prices.

Meanwhile, Sun is also moving on the hardware front, announcing on Monday an alliance with Advanced Micro Devices(AMD Quote) to build low-cost servers around AMD's Opteron chip.

Sun, which has turned a per-share profit only once in the past 10 quarters, is always promising to drive profits with complicated plans to capitalize on Java and other highly regarded technologies developed by the Santa Clara, Calif., company.

In September, for example, Sun dropped its old "Sun ONE" brand name and relabeled most of its software products with the name Java. The company's major software bundle is now the Java Enterprise System, a move Schwartz hopes will make it clearer that Java is Sun's product.

The Java Desktop includes the operating system, a browser, StarOffice, an email client and numerous third-party applications written in Java, Sun's popular programming language. The system is built to run on either Linux, an open source operating system, or Solaris, Sun's proprietary operating system. Java Desktop will begin shipping in December.

Commenting on the desktop initiative last month, when details of the package were less clear, Merrill Lynch analyst Steve Milunovich called the initiative "intriguing" and said that his own survey indicates that 40% of chief investment officers would consider Linux on the desktop. But "given limited resources ... this doesn't appear to be a battle Sun will win," he added. "Sure, it's a thorn in Microsoft's side, but will Sun make much money on it?"

Well aware that any assault on Microsoft's desktop franchise is likely to be greeted with even more than the usual dose of skepticism, Schwartz is quick to point out that the desktop initiative isn't likely to do very well in North America. "To put it bluntly, North America is the least price-sensitive market in the world," he said.

Translation: Microsoft is so well entrenched here even a much cheaper alternative won't entice all that many businesses to switch. But Asia, parts of Europe and South America are a different story, he said.

Sun is also considering a new pricing plan, called "per citizen," Schwartz said. The company is exploring this idea with agencies of foreign governments that want to deliver electronic services to their populace.

Martin Reynolds, a fellow with Gartner, an IT market research company, called the initiative interesting, but said piracy of Microsoft products in parts of Asia could be a fatal problem. "What's the difference how cheap the Java Desktop is when you can get Windows and Office, the standards, for free?" he wondered.

In another move to recast its line-up towards more low-end products, on Monday Sun announced a strategic alliance to use AMD's Opteron chips in its servers running on both Solaris and Linux. , hoping to tempt buyers with cheap prices.

Within the next calendar year, Sun will roll out two- and four-way powered servers , offering 64-bit Solaris in the first half of 2004 (customers can currently run Solaris on Opteron in 32-bit mode).