June 3, 2004

Analysis: New Fujitsu deal looks like smart long-term move for Sun

Author: Chris Preimesberger

On the surface, Tuesday's news item about Sun Microsystems and Fujitsu merging their parallel Solaris and SPARC-based server lines and having them ready for market in two years looks like just another yawner of a business partnership deal. But in the bigger picture, it could turn out to be a brilliant strategic move for Sun, which needs all the help -- international and otherwise -- it can get right now. Oh, and it won't hurt Fujitsu, either. UPDATED

In a nutshell: Sun says it will take the lead in design, development, and support, with Fujitsu leading with its strength, manufacturing. Both, however, will contribute software development and chip design.

Fujitsu, however, sees the development aspect of the deal as more of a 50-50 proposition.
"As a partnership, both parties will collaborate equally in the all elements of design, development, support and manufacturing," Fujitsu spokesman Eric Paulsen told NewsForge Friday.

The new product line, blandly dubbed the Advanced Product Line for lack of a clever code name, is designed to be the beefed-up replacement for Sun's three-year-old Sunfire 6800 and Fujitsu's PrimePower server systems.

Buddies from way back

Sun and Fujitsu go way back. In February 1982, Sun -- which had just opened for business -- and Fujitsu completed their first transaction, when "we placed our first order for Eagle disk drives," Sun President/CEO Scott McNealy said. The two companies have "maintained a squeaky clean, complementary relationship" ever since, he said, with Fujitsu evolving into one of Sun's top resellers and manufacturing partners.

"We don't have any joint equity or joint XYZ stock -- just a clean, simple, pure arrangement, where they make our products with our control. What you see is what you get; it's a non-complicated deal," McNealy said.

The key point regarding Tuesday's news is that Sun and Fujitsu also have collaborated for years on the design and production of the carrier-grade UltraSPARC chip architecture they each use in their enterprise servers. This is part of the technology foundation they will use to create the new product line, which could boost the fortunes of Sun in a big way. McNealy said the APLs will provide 10 to 20 times the throughput and storage capacity of the older servers.

Sun needs to offload this new work because it wants to focus more resources on a couple of even more advanced enterprise projects: the new multithreaded Rock and Niagara chips, which are expected to be introduced in 2006.

Marketing, R&D savings will be substantial

Sun will save billions of dollars by combining its R&D, marketing, and distribution resources -- especially in the Pacific Rim and in eastern and southern Asia -- with Fujitsu's. Conveniently, Sun is now making big sales strides there. Each of the new APL servers will be grid-ready and modular, with Sun's Solaris systems running anywhere from one to 128 Sun and Fujitsu SPARC processors. Everything will be mix-and-matchable.

This plays right into Sun's recent sales wins in both China and India, where it has been successful in convincing those two governments to begin converting their old Windows/Microsoft Office desktops to Linux-based Java Desktop Systems. Sun expects to ship about 200 million Java-Linux desktops to Chinese workers over the next six years and has another large order for India also in the bank. Several big deals are also in the offing for European countries.

Fujitsu is uniquely well-equipped to take over the bulk of Sun's server-box manufacturing needs. This will allow Sun to focus on what it does best -- improving J2EE-based systems that have become a de facto enterprise standard with 58 percent market penetration. Sun also wants to step up production of embedded Java chip sets for cell phones and handheld devices, because the demand for these continues to escalate on a monthly basis.

If this all works out the way it is supposed to work, Sun, which has been losing money for the last 11 quarters, stands to save substantial capital investment dollars while profiting from its intellectual property -- as long as the new servers do what they're supposed to do. And, of course, as long as Sun can sell them, though McNealy's one of the best salesmen in the business.

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