Sun undercuts Intel server competition

Server price cuts have become common since the economy and IT spending stalled, and they rarely raise eyebrows anymore. But Sun Microsystems's decision last week to take direct aim at Dell Computer in the low-end Intel server market could force the two other full-service vendors, IBM and Hewlett-Packard, to act similarly.

"If you are a buyer and you got a lower price from Sun, you can absolutely use that as a negotiating point against HP and IBM," said Gordon Haff, an analyst at Illuminata Inc. in Nashua, N.H. Sun's move "definitely puts pressure on the other players," said Sarang Ghatpande, an analyst at D.H. Brown Associates Inc. in Port Chester, N.Y. But he also said price is more of a starting point in customer selection.

Competitors dismissed Sun's action, saying it won't ignite a server price war. Sun "lacks the staying power in this sector of the market," said Hugh Jenkins, a vice president of marketing in the industry-standard servers division at HP. "Sun would really rather sell you a great big Solaris system."

Razor-Thin Margins

"The Intel space is already a very competitive marketplace that runs on razor-thin margins," an IBM spokesman said. "We don't see Sun as being able to either start or sustain a long-term price war." Neither IBM nor HP disputed Sun's lower-cost pricing claim, but they said it wasn't a fair comparison because the products don't have identical features or warranties.

Sun said it's now making two low-end servers running one or two Intel Pentium Xeon processors with either the Solaris x86 or Linux operating system, starting at US$2,450.

Sun said a comparatively priced HP server costs $3,238. But HP contended that the Sun server doesn't offer similar features, such as an embedded RAID controller.

The announcement was coupled with a move by Oracle Corp. to ensure that its products run on Sun's Solaris x86 and its other systems. Oracle believes the importance of these low-end systems is increasing.

"Big machines aren't going to disappear," said Oracle CEO Larry Ellison. "However, the future of computing (is) low-cost components being assembled into large, large, high-performance computers."

Ellison joined Sun CEO Scott McNealy only a month after appearing with Dell CEO Michael Dell, who, without naming Sun, bashed makers of what he described as proprietary Unix systems. Oracle said that there was nothing contradictory about Ellison's Dell appearance and that the database vendor is only interested in giving users choices. But the move sparked discussions between Oracle and Sun. Ellison, at the time, "may not have known we were as serious with our x86 strategy," said Souheil Saliba, a vice president at Sun.

Dell had the following reaction to Sun's move: "There is a lot of competition -- and that means customers are getting a whole lot more value," said company spokesman Bruce Anderson.

Sun Backs Red Hat on Linux

Six weeks after discontinuing its own version of Linux, Sun last week said it will sell and support Red Hat Inc.'s Enterprise Linux operating systems on its Intel-based servers.

Sun stopped marketing its Sun Linux 5.0 distribution last month, after users shunned the software because they didn't want to install and support multiple versions of the open-source operating system.

Dan Kusnetzky, an analyst at IDC in Framingham, Mass., said Sun's new strategy of partnering with Red Hat makes more sense than its attempt to go it alone on Linux. He expects Sun and Red Hat to work together to make Linux as reliable as Sun's Solaris operating system.

Bill Claybrook, an analyst at Aberdeen Group Inc. in Boston, agreed that the alliance with Red Hat is a smarter direction for Sun to take. "I don't know anybody who thought Sun having their own Linux was a good idea," he said.

Red Hat Enterprise Linux will be available from Sun by the summer and will be supported on Sun's recently announced x86-based systems, including the Sun Fire V60x and V65x, the two companies said.

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