Sun Nears Deal to Buy Intel Chips for Servers in Likely Hit to AMD
An Agreement May Include
Endorsement of Solaris;
A Push Toward Flexibility
By DON CLARK
Sun Microsystems Inc. and Intel Corp., two Silicon Valley powers that
have frequently taken opposing sides in technology battles, appear ready
to work together.
The companies have been negotiating an agreement under which Sun would
buy Intel chips for use in server systems, according to people briefed
about Sun's plans. A deal, which could be announced as soon as today,
may include an endorsement by Intel of Sun's Solaris operating system,
these people said.
Sun's use of Intel chips, while not unprecedented, would be a blow to
Advanced Micro Devices Inc., which is now Sun's exclusive source for
chips based on the popular x86 design used in most personal computers and
servers. It also would be a sign of the renewed competitiveness of
Intel's chips, which outsell those of AMD but whose performance levels had
fallen behind that of AMD's products until recently.
Sun, of Santa Clara, Calif., also would keep making computers based on
AMD chips, these people said. That dual-supplier strategy is already
used by competitors Hewlett-Packard Co., International Business Machines
Corp. and Dell Inc. Adding Intel-based servers would help Sun match the
breadth of those rival offerings.
A Sun spokesman declined to comment, as did a spokesman for Intel.
Sumit Dhanda, an analyst with Banc of America Securities, wrote a
research note Friday predicting Sun would begin using Intel chips in servers
that would hit the market in late 2007. He based the prediction on
unspecified "channel checks," a phrase that often refers to information
from companies that supply components to computer makers.
A relationship with Intel would be the latest in a series of steps by
Sun to become more flexible about technology. The company has an
internally developed line of chips called Sparc that was seen in the mid-1990s
as a competitive threat to Intel's chips. Scott McNealy, Sun's former
chief executive officer, for years criticized rivals for relying too
heavily on Intel's x86 line, and was even more derisive about a separate
product family, known as Itanium, that H-P and others use for high-end
servers.
Intel, meanwhile, has been a major proponent of Microsoft Corp. and its
Windows operating system, which Sun battled for years with its Solaris
and Java software. But Mr. McNealy and Jonathan Schwartz, who was
promoted to succeed him as CEO in April, have had to shift strategies as x86
servers became a mainstay in the computer rooms of most companies.
In 2000, Sun bought Cobalt Networks Inc., a maker of smaller servers
that used Intel chips; Sun eventually stopped selling those systems. In
November 2003, Sun forged a deal to begin making servers with AMD's
Opteron chips. Those machines are now one of the fastest-growing parts of
Sun's business, though it still gets more revenue from Sparc-based
systems.
Servers that use x86 chips often run the open-source Linux operating
system or Microsoft's Windows. Sun became more receptive to the latter
option after an April 2004 settlement of antitrust claims it filed
against Microsoft. But Mr. Schwartz also pushed the company to aggressively
market Solaris for x86 systems, an initiative that could be aided by
Intel's endorsement.
For Intel, landing Sun would be Chief Executive Paul Otellini's biggest
customer win since the June 2005 adoption of its chips by Apple Inc.,
another frequent critic of Intel technology in the past. Though neither
Sun nor Apple buys huge volumes of microprocessors, they are both known
as technically savvy and their opinions carry weight among customers.
Sun is likely to remain a close partner with AMD, whose assistance
helped make Sun a major x86 server vendor. Mr. Dhanda, with Banc of America
Securities, estimated that in 2008 Intel's sales to Sun might amount to
$25 million to $50 million -- assuming Intel can grab 25% to 50% of the
shipments that now come from AMD. That would lower AMD's annual
per-share profit by about one or two cents, he estimated. AMD is expected to
post a profit for 2006 of 91 cents a share, according to the average of
analysts tallied by Thomson Financial.
John Taylor, an AMD spokesman, declined to comment on the possibility
of a Sun-Intel relationship. But he added that competition between the
chip makers is good, driving innovation and serving "the market demand
for choice."
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[Fully story, no URL, received in WSJ, "EUROPE MORNING UPDATE: Sun Nears Deal to Buy Intel Chips."] |
