Top Stories: Netscape-AOL Linkup Stands to Give Sun a Potent Brew
By Eric Moskowitz
Staff Reporter
11/23/98 3:59 PM ET
Sun Microsystems (SUNW:Nasdaq) is on a roll: Its stock price is up 75% in six weeks, and last week the company won a key preliminary ruling in a suit against Microsoft (MSFT:Nasdaq) over the compatibility of the Windows 98 operating system and Sun's Java programming language.
Now Sun is on the cusp of partnering with Netscape (NSCP:Nasdaq) in a deal that could finally give Sun the base it needs to extend Java to the masses.
"Traders are getting the word that Sun will really be able to compete with Microsoft now," says Matt Glantz, an options trader with Apex Trading Group. Sun stock was up 4 1/16, or 6%, Monday as the tech sector rallied once again.
The latest reports have America Online (AOL:NYSE) paying Netscape $4 billion in stock for its browser and Web site, leaving Sun to buy or lease Netscape's enterprise business products. The proposal on the table is typical of the way Scott McNealy, Sun's chief executive, does business, says ABN/Amro First Chicago analyst David Wu: "Scott cares about not diluting his company's earnings, so he isn't going to overpay for Netscape."
Sun's latest maneuver would further align the company with the anti-Microsoft camp that includes Oracle (ORCL:Nasdaq) and IBM (IBM:NYSE).
The Sun-Netscape partnership could pay off in a number of ways. For one, Sun could bundle Netscape into Sparc, the company's flagship processor, says Michael Cusumano, a professor at Sloan School of Management at MIT and co-author of Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft. Sparc, the processor for Sun's Unix workstations and servers, is a key element of the open architecture Sun developed in the 1980s.
If Sun can bring its open-source Java programming language to AOL and Netscape, the upside in terms of licensing royalties and additional Java usage by vendors and programmers could be massive, says Amir Ahari, a senior analyst with International Data Corp.
"The combination of AOL's commercial clout and Netscape's browser reach gives Sun the chance to break Microsoft's hold on the operating system and application sides," Ahari said. "If the cards are played right, you could see a new triumvirate of AOL, Netscape and Sun at the top."
Ahari says that if Java becomes the standard operating system on AOL and Netscape, resellers who have been paying Microsoft licensing fees for years could build with JavaBeans instead. JavaBeans are the source code that developers use to write the programming language. Sun claims Java programs can be written once and then run on any operating system, including Microsoft's.
A nice complement to Sun's plans is Netscape's SuiteSpot, a mail server that facilitates the sending of business-to-business emails, which already runs on Sun's Unix servers.
While the deal isn't done, that hasn't prevented speculation on its impact. In five years, Sun's valuation will be higher than Microsoft's, predicts Ahari. "That's how big a deal this could be for Sun," he said. Monday afternoon, Sun's market cap was about $27 billion, while Microsoft's was close to $300 billion.
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