Sun Micro, Google Set Up Base Camp

Updated from 3:42 p.m. EDT

Sun Microsystems ( SUNW) and Google ( GOOG) struck a cross-distribution deal that takes long-term aim at Microsoft's ( MSFT) desktop dominance, but an accompanying long-term strategy has yet to be realized.

Despite a press conference Monday at the Computer Museum in Mountain View, Calif., details of the deal were scant, raising questions of whether a recent run-up in Sun stock and a drop in Microsoft shares were warranted.

Shares of Microsoft fell 52 cents, or 2%, to close at $24.98 in volume that was more than two times the daily average over the past three months; shares recently fell an additional 3 cents after hours. Shares of Sun recently lost a penny after closing up a penny at $4.20 after climbing more than 6% Monday on rumors of a Google deal. Google was trading up 69 cents, or 0.2%, at $311.69 in recent after-hours trading after closing down $7.68, or 2.4%, at $311.

Under a multiyear agreement, Sun said it will include the Google toolbar as an option on its consumer downloads of the Java Runtime Environment, Sun's software that enables Java applications on the desktop.

However, it's Sun -- not Google -- that can use more help distributing its technology. But both companies were short on details about how Google, the most popular search engine, will help distribute Sun's OpenOffice.org productivity suite, which so far has been unable to break the dominance of Microsoft's Office software kingdom.

In a vaguely worded press release, the companies merely said they "have agreed to explore opportunities to promote and enhance Sun technologies," including Sun's OpenOffice.org productivity suite.

When asked at a press conference Tuesday morning whether Google will specifically promote OpenOffice.org, Google CEO Eric Schmidt replied, "We're going to work to make the distribution of it more broad." But he said the company is not announcing any specifics yet.

In addition, Schmidt said that while it makes sense to make the Java Runtime Environment available on the Google toolbar, he wants to first wait to see the reaction to making the Google toolbar available on the Java Web site.

"It's interesting, but I don't think it's ground-shattering for either company right now," said Chuck Jones, an analyst with Atlantic Trust Stein Roe, which holds Microsoft shares and has a small holding of Google stock. "There are a lot of unknowns right now." For instance, if Google ends up distributing OpenOffice, does it charge for it or offer it for free? For now, Jones said, he believes the pact raises no concerns for Microsoft.

Delaware Investments portfolio manager Chris Bonavico took a similar view. "I think the reaction to it was more than the reality of it," Bonavico said of the announcement.

Bonavico, whose firm holds Microsoft shares, said he sees little incentive for most Microsoft Office users to switch to OpenOffice.org even if Google distributes it.

"I didn't see the announcement as being the watershed that some people did," Bonavico said. "I don't think it changes very much."

For Google, Schmidt said the vastness of Java distinguishes this bundling deal from others. "Java touches so many different devices," said Schmidt, who worked at Sun for 14 years.

For instance, there are currently 700 million-plus Java-enabled phones, Sun CEO Scott McNealy said. He said about there are about 20 million downloads of the Java Runtime Environment every month.

However, that's a fraction of Google's audience, which McNealy noted receives a staggering 80 million unique users a month.

Both executives also hinted that Google would become an even larger customer of Sun technology. But again, details were in short supply. "Google is going to become a Sun customer. Stay tuned for more announcements on that," McNealy said.

Schmidt said that Google historically has not given specific numbers about its hardware. "We have been a Sun customer for some time," he said. "As part of this contract, we're going to be extending that."

The executives even dodged questions about whether their pact is aimed at taking on Microsoft, a longtime nemesis of Sun and competitor of Google. "We're going after revenue, growth, profits, customers," McNealy said.

But at the conclusion of the press conference, McNealy took a slightly more combative tone. He said some people are stuck in the old client-server model of which he believes Windows is a remnant. "People are still writing desktop-server applications," he said. "That's so last millennium."

By contrast, Sun and Google are moving in the direction of an open-source network services model in which applications are available via the Web. But while Google has become this millennium's Internet darling, even McNealy acknowledged Sun has had to climb its way back from its former glory days.

"We, a long time ago, were pretty hot. Then the bubble kind of burst," McNealy said. The company has been retooling and restrategizing, trying to win back big accounts in Wall Street, telecom and cable, he added. Sun also is now focused on the Web, with such customers as eBay ( EBAY), Salesforce.com ( CRM) and Google.

But with specifics on the Google agreement so limited, it's too early to say whether it represents one more step toward a comeback for Sun.

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