Sun Settles Microsoft Lawsuits, Inks Collaboration Agreement

by Timothy Prickett Morgan

The computer business just got a whole lot more boring. Sun Microsystems, which has spent a decade making mean wisecracks about archrival Microsoft, has buried the hatchet. The two companies announced last Friday that they had settled all outstanding antitrust and patent litigation and that they had signed a 10-year technology collaboration agreement to share intellectual property for the respective client and server platforms.

Microsoft has agreed to pay $700 million to Sun to settle the Java antitrust lawsuit, which it brought against Microsoft several years ago, requesting at least $1 billion in damages. Microsoft is also paying Sun $900 million to resolve unspecified patent issues. In the next quarter, Microsoft will also pay Sun $350 million to license various Sun technologies, and Sun will pay Microsoft royalties when it incorporates Microsoft technologies into its client and server platforms in the coming months. These technologies will be licensed under the consent decree that Microsoft signed to settle the antitrust lawsuit with the Department of Justice two years ago. Under the settlement, Microsoft gets to continue to distribute its Java Virtual Machine inside Windows, and the two companies say that they are going to work together to make sure Java and .NET place nice together. Perhaps most surprisingly, Sun is going to support Windows on its Intel Xeon and Advanced Micro Devices Opteron servers. You just never know how cold it can get in hell.

For its part, Sun says that this settlement satisfies the complaint it had that the European Union's antitrust authority had just brought against Microsoft, imposing sanctions and a $613 million fine. Sun was half of that case, and the more important half, since the EU was contending that Microsoft was using its monopoly power on the desktop to take control of the server market, which it most definitely is doing. Without Sun protesting, the EU doesn't have much of a case. Sun is more worried about getting back to profitability and trying to sell its new UltraSparc-IV and Opteron server lines, its Java Desktop System office automation software, and its Java Enterprise System Java-based software stack. Both run on Windows, Unix, and Linux.

Anyone who has known Sun and Microsoft for even a short time might have figured that the only ways these two players would bury the hatchet would be in each other's corporate skulls. But it looks like Sun is wearying of the battle with Microsoft and wants to just focus in on retaining its Solaris base, selling whatever Sparc or X86 iron it can, and promoting Java and application stacks based on it. "It's never a dull moment around here," said Sun chairman and CEO Scott McNealy as he opened a call with Wall Street analysts. No one in the computer business was better able to put Microsoft in its place--at least verbally, if not competitively--and the simple fact is that McNealy is not going to be able to say the inciteful and insightful things about Microsoft that used to spice up such meetings. McNealy has serious things to do, and one of them is to try to get Sun profitable. The other is to keep it profitable. And to that end, he announced that Sun would be cutting 3,300 jobs and appointing Jonathan Schwartz, the company's former software czar, to the position of president and chief operating officer.

Schwartz came to Sun through a relatively minor acquisition seven years ago, and has appointed John Loiacono, the executive formerly in charge of Sun's Solaris and Linux marketing and development, as his replacement as Sun's software chief. Schwartz takes over the job vacated by Ed Zander, Sun's boisterous and feisty president and COO who helped steer the development, manufacturing, and sales of Sun's entire product line through the boom times in the 1990s and who two years ago left Sun and is now chairman and CEO at communications giant Motorola. McNealy explained that post-bubble, he did not name a successor to Zander because Sun was going through a tough time, he had a whole new set of executives, and they were trying to manage a difficult set of product transitions. He wanted to keep firm control. Now, as the executives have seasoned a bit, McNealy says that there is a "just a lot to go do" and now he feels he can delegate authority to Schwartz. It is no accident that Sun has chosen a software executive to run the day-to-day operations of the company, since this, more than hardware and maybe more than services, is where Sun's future profits are likely to come from. McNealy said that Schwartz was the only person considered for the job, but said that he interviews everyone he meets for a potential job at Sun.

McNealy will still have the financial, technology, and human resources executives reporting to him, and will focus on larger matters, as a chairman and CEO is supposed to do. One of those big picture jobs is to paint an optimistic picture for the salespeople and current and potential customers. McNealy, of course, ended with this. "I love where we are. I love our cash. I love our installed base. And I love our product line."

Loiacono has the title of executive vice president of software, and with the appointment, he is driving what will perhaps be the most important Sun division over the next few years. He has been Sun since 1987, and was for a long time the chief marketing officer for the company, helping the company forge its brands and creating the go-to-market strategies for both the Sun sales force and its partner channel. Late in 2002, as Sun had realized (at least internally) that is had erred by trying to kill off Solaris for X86 just as Linux was becoming a force in the IT market, Loiacono was tapped to be senior vice president of Sun's operating platforms group, the subset of the company that copes with Solaris, Linux, and the Java Enterprise System.

Rich Green, the Sun executive who headed up Sun's $1 billion Java antitrust lawsuit efforts and who was responsible for steering the development of Java tools at the company, resigned before the Microsoft agreement was finalized, but hung around until the deal was announced.