SUNW beats out IBM for Star Office Suite Products:
Sun plans purchase of Star Division
Hopes to compete with Microsoft Office applications
By Mike Tarsala, CBS MarketWatch
Last Update: 6:45 PM ET Aug 29, 1999 Hardware Report
Silicon Stocks
PALO ALTO, Calif. (CBS.MW) -- Sun Microsystems next week will buy Star Division, a German application software provider, to go head to head against Microsoft in the personal computer software market, according to a person close to the company and analysts.
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Updated:
8/28/99 8:00:52 PM ET
Sun (SUNW: news, msgs) plans to announce the acquisition at a press conference in New York on Tuesday. Star Division makes a family of software products similar to Microsoft's (MSFT: news, msgs) popular Office suite of products. The products include a word processor, spreadsheet and presentation software.
The acquisition will give Sun "about the closest thing to real competition to Microsoft Office," said Rob Enderle, an analyst with Giga Information Group in Santa Clara, Calif., who said he's heard the deal is set to be announced. "It's almost a clone of Microsoft Office with a couple of advantages."
Officials at a Star office in Freemont, Calif. did not return a phone call seeking comment. Officials at Palo Alto-based Sun declined to comment The company said Thursday that it plans to unveil the "next piece" of its Internet strategy in New York on Tuesday.
Sun's shares rose 1 Friday to 76 3/16.
The deal, which will enhance Sun's Internet strategy, follows the company's acquisition of Forte Software Inc. on Aug. 23 for about $540 million in stock. It was unclear how much Sun will pay for Star Division because analysts did not have a good idea how many people the private company employs or what its revenues are.
Star Division's ace is that unlike Office, Star Division runs on Unix, Linux, IBM's OS/2 and other operating systems. It could tap a market unavailable to Microsoft.
The software works with data from popular Microsoft programs, including Microsoft Word.
Sun plans to continue offering the software for free to consumers, one person close to the company said. But the company will make money from Star Division by selling the software to Internet service providers, who can then offer applications as a service to customers. Sun already has built strong sales loyalty for its brawny computers among some of the world's largest Internet service providers.
Sun has out-paced growth of IBM, NASDAQ
The sales strategy is similar to the tack taken by Linux software companies, such as Research Triangle, N.C.-based Red Hat Inc. (RHAT: news, msgs) and others. Red Hat, along with Caldera, Pacific Hi-Tech and others, practically give away their high-end computer operating systems, and profit on servicing the software.
"Certain types of software, such as operating systems, migrate towards freeness," said Nicholas Moore, an analyst with Jurika & Voyles in Oakland, Calif. "What you're really buying is the support."
However, free software hasn't been wildly successful in the business market, where Sun hopes to profit, Moore said.
"It's almost always the wrong thing to do," Moore said. "Buying the software is a very small part of the cost. Free software really isn't free. You end up paying more for the support."
Other companies that compete with Microsoft's Office include Corel Corp. and IBM Corp. Still, Microsoft holds roughly 85% of the market for applications suites.
Then again, Corel and Microsoft aren't giving away their suites. Sun's long-term profitability from acquiring Star Division is questionable, analysts say. But it does stab at the heart of long-time Sun rival, Microsoft.
The hype surrounding Linux already has Microsoft executives worried, analysts have said. Now a freebie competitor has a new avenue of attack in going after Microsoft's application suite. It could eventually force Microsoft to lower its software prices.
Microsoft is unlikely to lose market share because of Star Division, Giga's Enderle said. But the company would've faced a challenge had IBM acquired the company. IBM (IBM: news, msgs) executives reportedly were in talks about purchasing Star Division in July, but the talks broke down, according to Enderle.
IBM has a broader customer base and more clout in the computing market than Sun, Enderle said. But some executives within IBM reportedly feared buying Star Division would take business away from IBM's Lotus division, which sells an application suite.
"I think it will go down as one of IBM's biggest mistakes over time," Enderle said.
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