Sun makes $2bn pact with Microsoft
Published: 02 Apr 2004 15:20 BST
Sun Microsystems announced on Friday that it has moved to a new phase of legal and technical cooperation with longtime foe Microsoft that will involve a payment of $1.95bn to Sun.
Sun also said on Friday that it plans to cut 3,300 jobs after it issued an earnings warning.
The company also named Jonathan Schwartz, 38, previously executive vice president of software, as president and chief operating officer. Previously, chief executive Scott McNealy had said the company didn't need to fill the position after the departure of Ed Zander in 2002.
For its fiscal third quarter, which ended Sunday, Sun expects revenue of $2.65bn and a net loss of $710m to $810m, or 23 cents to 25 cents per share. The loss includes charges of about $350m for an increase in the valuation allowance for deferred tax assets and about $200m to restructure its work force and real estate, Sun said.
Excluding the charges, the loss would have been $200m to $260m, or 6 to 8 cents per share. The average estimate of analysts surveyed by Thompson First Call was less pessimistic: a loss of 3 cents per share on revenue of $2.85bn.
The company says it has more than 35,000 employees worldwide, so the layoffs account for about 9 percent of its work force. The job cuts will affect all divisions and geographic areas, chief financial officer Steve McGowan said in a conference call. The majority of cuts will take place by the end of September, he added. Sun already had cut 8,500 employees in two major layoffs in 2001 and 2002.
The changes are much bolder than what the company disclosed less than two months ago at its worldwide analyst conference.
Under the 10-year pact with Microsoft, the software company will pay Sun $700m to resolve antitrust issues and $900m to resolve patent issues, the companies said. The companies will pay royalties to use each other's technology; Microsoft is paying $350m now, with Sun to make payments when it incorporates technology later.
Offsetting the payments will be a charge of about $475m total spread over upcoming quarters, including the charge of about $200m for the third quarter, to pay for the restructuring and reductions in product portfolio, Sun said.
McGowan said the company expects to reduce research and development and administrative expenses by $500m from about $5.2bn in fiscal 2004, which ends 30 June, to $4.7bn in fiscal 2005.
The Microsoft payments will be recorded in the fourth fiscal quarter, McGowan said.
For Microsoft, the deal with Sun is the latest settlement it has struck with a key rival. Last May, the company inked a $750m deal with America Online to drop pending litigation, share technology and jointly distribute software. And in 1997, the software maker and Apple agreed to settle their differences.
A $1bn antitrust suit filed by Real Networks in December, however, is still pending.
Broad pact with Microsoft
The goal of the technical collaboration between Sun and Microsoft is to improve interoperability between the companies' respective products, according to Sun.
"This is a big day for customers. Everywhere we go customers say we have Sun and Microsystems technology and we need interoperability. We need peace," McNealy said in a statement.
McNealy and Microsoft CEO Steve Ballmer are expected to provide further details on both the legal settlement and technical collaboration at a press conference in San Francisco on Friday.
The 10-year technical collaboration will encompass several facets, designed to improve information sharing between the companies' server and desktop products.
The companies will share technical information to allow their respective security products, namely their directories and identity servers, to work together. The agreement could also be expanded to email and database software, the companies said.
Sun will also license access to the Windows desktop communications protocols under a program initiated as a result of Microsoft's settlement with the US Department of Justice in 2002.
Microsoft will be allowed to continue to provide technical support for customers using its Java virtual machine, the software needed to run Java programs. The companies also vowed to work to improve technical collaboration between Sun's Java software and Microsoft's .Net programming technology.
Sun also said that its servers based on Intel Xeon and AMD Opteron processors have been certified to run Windows.
As part of the deal, the companies have agreed to not to sue over past patent infringement claims they may have against each other. That agreement can also be expanded to cover future situations. In addition, the companies have agreed to discuss a patent cross-licensing agreement.
Sun, which chiefly sells powerful networked computers called servers, has been struggling to return to the profitability that rivals such as IBM, Hewlett-Packard and Microsoft enjoy. The company already has suffered 12 straight quarters of shrinking revenue after previously enthusiastic customers from the late 1990s curtailed spending and embraced technology Sun didn't support.
Sun now has made several dramatic changes, including the embrace of x86 processors from Intel and Advanced Micro Devices alongside Sun's own UltraSparc chips and the lukewarm adoption of the Linux operating system alongside Sun's Solaris.
McNealy put the moves in a positive light: "Now is the appropriate time to take cost out and drive productivity improvements in anticipation of returning Sun to sustained profitability," he said in a statement.
"Over the past three years we have made substantial progress in reducing cost and capacity," McNealy said. "We completely revamped our product line, leveraging open source and industry economics while improving product quality and availability. And, we have re-energised our channels and developer communities."
McGowan and McNealy refused to say whether product issues, broader economic problems or other factors affected the quarter's financial results. They promised details when the company reports full results on 15 April.
Schwartz's role won't be ceremonial, McNealy said on a conference call. "He will be driving the product, sales, marketing and manufacturing efforts at Sun with a huge, hands-on chief operating officer role at Sun. This is a good thing," McNealy said.
Asked what he plans to do with Sun's billions in cash, McNealy said, "It's going to sit there, and we're going to continue to say we've got the best cost structure of any non-investment grade company you've seen." Standard & Poor's in March lowered Sun's credit rating to "junk" status.
CNET News.com's Martin LaMonica contributed to this report.
Did you find this article useful?
68 out of 143 people found this useful
- Share this article:
Full Talkback thread
1 comment
