Hard-pressed Sun Microsystems ( SUNW) did the expected Monday, announcing an expanded partnership with Oracle ( ORCL) and rolling out low-cost servers based on Intel chips.

But Sun CEO Scott McNealy and Oracle's Chief Executive Larry Ellison went beyond the prepared script and made it clear that both companies are moving aggressively into the lower end of the enterprise computing market now dominated by Dell ( DELL), IBM ( IBM), Hewlett-Packard ( HPQ) and Microsoft ( MSFT).

"We've been too fired up about 64-bit computing, McNealy said. "And we didn't jump on the low-cost 32-bit computing bandwagon," he added a bit later. Ellison went even further, saying "Scott and I are abandoning high-cost computing," but he quickly backpedaled when McNealy corrected him.

Simply put, the two companies announced four things:

  • An expanded partnership, and a promise that all Oracle products will run on all Sun hardware, including Solaris x86-based systems and Linux on x86-based systems as well as Solaris SPARC and Unix.
  • Cheap servers from Sun. The company is now offering servers for as little as $2,450, running the customer's choice of Solaris or Red Hat (RHAT)Linux.
  • A promise from Sun to help expand the number of applications written or tweaked to run under Solaris on an Intel-based server. There are now 1,000 applications available on Sun's Solaris x86 platform, the company said.
  • A partnership with Red Hat, the leading provider of the open-source Linux operating system. Sun will distribute Red Hat's version of Linux, and Red Hat will distribute Sun's Java Virtual Machine with Red Hat Linux.
  • Wall Street's initial reaction to the well-hyped announcement was a yawn. Both Sun and Oracle were down moderately in regular trading on a generally down-day for the Nasdaq; Sun lost 16 cents, or 3.7%, to $4.14 a share, while Oracle lost 39 cents, or 3.1% to $12.17.

    Pacific Crest Securities analyst Brent Bracelin, however, said the announcements were too little, too late. "It's taken Sun two years to come out with a cheap server with a Xeon chip. What do they do with all the R&D money," he wondered? Bracelin's company does not have a banking relationship with Sun.

    To be sure, Sun is a latecomer to low-end computing, offering only two x86-based servers (one powered by Intel and one by AMD ( AMD) chips) in addition to proprietary servers built around the company's SPARC family of microprocessors. As U.S. companies have increasingly opted for cheaper models, Sun's server business has taken a painful hit.

    Cheaper servers have lower margins, of course, but because the company's market share of 32-bit servers is around zero, the extra revenue will help, regardless of the margin.

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