Sun and Microsoft Settle Out of Court

Sun Microsystems received a $1.6 billion cash handout from Microsoft, on condition that it drop all long standing legal actions against the company.

Sun Forms New Alliance with its Oldest Rival

After the taking chief executive of MicroSoft, Steve Ballmer, for a round of golf this month, Scott McNealy, the Sun Microsystems chief executive, joined with Ballmer in a press conference that announced the end of the long-running bitter rivalry between the two software firms (The Irish Times, 23-Apr-04).

Under the terms of the new partnership, Sun signed up to a new 10-year agreement that would see them drop all legal actions against Microsoft, in return for $1.6 billion (€1.5 billion) in much needed cash from Microsoft. Under the deal, Microsoft rid themselves of a potentially costly legal process, while Sun gains some much-needed cash to help it survive a very steep downturn in profitability.

Sun Post Large Loss

Sun may have seen this financial windfall as necessary to see them through a bad financial run. The company said it had a net loss of $760 million (€635 million), or 23 cents a share, for its fiscal third quarter ending March 28th, compared to a profit of $4 million for the same period last year. Revenue has fallen to $2.65 billion from $2.79 billion (Reuters). This represents the fourth straight quarterly loss posted by the company, which found itself having to cut 3,300 jobs and make management changes. All told, the company's future is currently uncertain, as is does not possess the diversity of products or the cash reserves of its rival Microsoft.

Both Companies Threatened by Open Source

It is clear that open source poses a more serious threat to Microsoft's monopoly then Sun ever did. Once quoted as describing Microsoft as the "dark empire", NcNealy now finds himself having to justify to Sun followers why his company has now signed up to a 10-year deal with their old enemy. Ironically, open source may have hurt Sun much more than Microsoft, where the network and software development markets that Sun traditional targeted have been much more altered by open source than the home end-user market that Microsoft targets. Suffice is to say, that if software such as Linux continues to encroach on the desktop PC, as it already has on the network and Internet server, then Microsoft may find itself someday in a similar situation to that which Sun finds itself in now.

John Collins

I have been writing about web technology and software development since 2001. I am the developer of the Alpha Framework for PHP, and the personal productivity app. I love open source, technology, and economics.