In a push to regain some of its lost luster, Sun Microsystems ( SUNW) will take the wraps off Solaris 10, an updated version of its operating system, at an event in San Jose, Calif., on Monday. The launch of Solaris 10 is significant not just for Sun but industrywide: Solaris is the most commonly deployed commercial version of Unix for servers, more popular than proprietary software from Hewlett-Packard ( HPQ) and IBM ( IBM). The debut is also a linchpin in the Santa Clara, Calif.-based server and storage marker's efforts to restyle itself from a hardware company to computer systems outfit. In line with that shift, Sun will provide Solaris 10 for free and make it available on hardware from competing vendors, powered by processors from Intel ( INTC) and Advanced Micro Devices ( AMD), in addition to chips from Sun. As part of its effort to boost Solaris, executives said in September that the company will begin
rewarding its salesforce for software-only sales -- even when Solaris is packaged with hardware from a competing vendor. For example, if one of Sun's salespeople sells Solaris to a customer with Dell systems, he will now be rewarded as if he had sold the underlying Dell hardware, President and Chief Operating Officer Jonathan Schwartz said at the time. "I think Sun management believes, correctly, that what has enamored people with Sun in the past is the power of its OS, not the gear. People really wanted to stay with Solaris but were tired of the expensive gear," said Frank Gillett, principal analyst at Forrester Research. "The bottom line is, Sun's recovery and return to respect hinges on the success of its OS and particular on Solaris 10." Gillett said there are sound strategic reasons to offer the software at no cost. By encouraging customers to stick with Solaris, Sun can maintain ties and hopefully sell them on server or storage hardware later on. Moreover, many business customers are more than willing to pay for support for software from Linux vendors, he pointed out. Sun hopes to make money from fees for such support, too. Research from Forrester suggests that Solaris has remained popular among large business customers, even as tech watchers have sounded more skeptical in recent years about the prospects of Sun's hardware business. In a survey of 129 large North American companies, the results of which were released in June, Forrester found that 43 used Solaris, and of that group 83% planned to buy at least 10 more copies over the next three years. "So all this handwringing about 'Sun is dead' is a bunch of hooey," said Gillett, "though I don't want to diminish that they've had a huge perception problem and customer defections."
Buoyed by cheerful sentiment on the launch, Sun shares were recently up 15 cents, or 3.1%, to $5.01, despite a 0.2% decline in the Nasdaq Composite. The release of the new, free version of Solaris threatens to alter dynamics in the server software market, notably among Linux vendors. Sun has lately been promoting its software as an alternative to Red Hat ( RHAT) or Novell's ( NOVL) SUSE, offering Linux users 50% pricing discounts on the most recent version of Solaris. In a recent note, CIBC's Ali Irani said Sun's plans to release details of the software code in a Linux-like move could harm Red Hat, the largest pure-play Linux outfit. Among the technological features stitched into Solaris is a "container" capability, which allows users to split the software into thousands of independent computing environments. Such containers help isolate errors and allow business customers to prioritize certain applications, according to Sun. For example, a server could be configured so that a Web server receives 75% of network bandwith during times of peak use, the company said. Another feature, DTrace, helps track down bottlenecks, helping boost software performance. The Solaris 10 launch comes as Sun has finally been showing some long-awaited progress on the financial front, having lagged well behind its peers during the technology recovery of the past couple of years. In October, Sun posted the
second quarter in a row of year-on-year revenue growth , reversing a long string of declines. The company posted a $174 million loss on writedowns for layoffs and a litigation settlement; however, excluding those charges Sun would have delivered a narrow $13 million profit for the quarter ending in September. Analysts currently expect Sun to deliver 6 cents in pro forma earnings per share for the fiscal year ending in June 2005.