Sun Ends Feud With Microsoft, Lays Off 3,300 And Names New President

Sun said it had entered into a broad technology pact with Microsoft that covers a wide range of technology sharing and patents. Under the landmark agreement, Microsoft has agreed to pay Sun $1. 6 billion. That payment includes $700 million to resolve pending antitrust issues and $900 million to resolve patent issues. Sun and Microsoft have been at each others throats technologically and legally for years now so the sight later today of a conference hosted by Sun Chairman Scott McNealy and Microsoft CEO Steve Ballmer was likened by some as a sign of armageddon.

The Sun-Microsoft deal includes sharing each other's server based technology in order to pave the way for new server software products that will work together. The cooperation will initially center on Windows Server and Windows Client, but will eventually include other important areas, including email and database software.

Dana Gardner, an analyst with The Yankee Group, Boston, Mass., said Sun-Microsoft pact "roils the industry like few announcements in recent years."

"All legal, trade and patent issues between them have been resolved, opening the door for much tighter cooperation," said Gardner. "The common enemy for Sun and Microsoft is Linux and IBM. "

In a prepared statement, longtime outspoken Microsoft critic McNealy said the deal will "stimulate new products, delivering great new choices for customers who want to combine server products from multiple vendors and achieve seamless computing in a heterogeneous computing environment."

Schwartz, former executive vice president of software will report directly to former company president Scott McNealy, who remains chairman and chief executive officer of the Santa Clara, Calif.-based technology company, according to Sun representatives.

The company preannounced a loss of $750 million to $810 million for its third fiscal quarter ending March 28, 2004, and promised yet another layoff of 3,300 people, in a statement issued Friday morning along with news of the reshuffling at the top.

Clearly, McNealy, who held the CEO, president and chairman positions was under fire from the board and shareholders, observers said.

"The share price has been down and it keeps staying down, which is kind of odd because they've been solid economists over there. They don't overpay for acquisitions," said James Whitney, ebusiness practice manager for Forsythe Solutions Group, a Skokie, Ill. Sun solution provider.

Whitney was extremely bullish on Schwartz's promotion, however. "It's fantastic [because] it signals a true focus on software." He and others noted that Sun, known for its SPARC-based workstations and Solaris operating system is seen as ambivalent about being a software company. Schwartz's rise could alleviate that perception, he said.

Schwartz was instrumental in the development of Sun's Solaris 10 operating system, as well as the company's Java software program, according to representatives.

The young executive's promotion to a position formerly held by longtime Sun executive Ed Zander comes as little surprise to avid Sun watchers. Schwartz has been increasingly visible in the last year as a mouthpiece for not only Sun's software plans, but also its sales, pricing and licensing strategies. He also has assumed the position of McNealy's right-hand man in joint appearances, with the CEO deflecting many operational questions to Schwartz in press conferences.

In a statement, McNealy said the move was evidence of Sun's executive succession strategy. McNealy has been under pressure for some time to share power at the company due to Sun's flagging share price, observers said.

"(Schwartz) brings strategic and operating experience, and inspirational leadership to this role that will drive Sun to growth and profitability. Today's announcement demonstrates the depth of the bench at Sun and our continued succession planning," McNealy said in a statement.

The Yankee Group's Gardner agreed that the promotion of Schwartz is something of a recognition by the company that software, not hardware, will propel Sun's future.

"Schwartz is a meteoric star at the company, and now moves from oversight of software to more general oversight of operations. The change shows the tail of software is wagging the dog of hardware at Sun," Gartner said.

This story was updated with news of the Microsoft investment and technology sharing agreement.

Elizabeth Montalbano contributed to this article.