SAN FRANCISCO (CNN/Money) -
Who knew Sun Microsystems's Scott McNealy had a little Prince in him? Not royalty, mind you, but the artist formerly and currently known as Prince. Prince wrote a famous song about purple rain. But these days, McNealy is hoping for a purple reign.
More specifically, McNealy hopes his as-yet-unseen line of Linux-based desktop systems, dubbed "purple boxes" (after the Sun server color scheme), will catapult the company into a leadership position in an as-yet-undefined market: Linux on the desktop. "If you had said a year ago that Sun (SUNW: up $0.10 to $2.98, Research, Estimates) was going after Linux on the desktop, I would have said that Linux desktop technology isn't mature enough," says Curtis Sasaki, Sun's vice president for engineering of desktop solutions. "But now it is."
Linux, the open-source operating software, is typically used in server environments. But recently, companies such as Lindows, Mandrake, and the noncorporate GNOME project have launched desktop versions of the popular software. While Lindows and Mandrake bill themselves as full-feature alternatives for use on consumers' desktops, Sun is targeting its approach a little more narrowly.
Rather than trying to be all things to all users, the company is going after corporate users who don't require the full set of applications that would normally be bundled together on a consumer's desktop. Sun is targeting environments such as call-center operations, government agencies, and some education markets. According to Roger Kay at IDC, those markets purchase "a few million" units per year.
Sun's move is a big shift, and it comes at a tough time in the company's history. Chief financial officer Stephen McGowan told analysts at the end of August that corporate technology spending "may be worsening," and Sun's stock hit a 52-week low on Sept. 19, closing at $2.70.
All 22 analysts covering Sun have downgraded their estimate of the company's performance for the fiscal year that ends in June 2003. And even at its new low, Sun's price/earnings ratio is still 75. Kind of a risky time to be launching a new product line that falls well outside the company's core area of expertise, no?
Well, yes and no. "When the economy is down, it's time to invest in the company," Sun's Sasaki says. True enough, but the danger is that Sun could spread itself too thin, losing focus on its Sparc server line and Solaris software. But the corporate Linux desktop market has the potential to become a big opportunity, in part because of Microsoft's restrictive and costly licensing requirements.
Sun could position itself as the low-cost, open-source, fully supported Microsoft (MSFT: down $2.22 to $45.24, Research, Estimates) alternative. Sun has not yet announced pricing or an availability time frame, but according to Sasaki, the Sun Linux desktop offering could save customers "one-half to two-thirds [of] total ownership costs."
Many feel Sun needs to do something -- and fast. "There's a perception that Sun is about to become the next Apple (AAPL: up $0.08 to $14.95, Research, Estimates)," says Rob Enderle, an analyst with Giga Information Group. "Sun is in Microsoft's sights [in the server market], and if they can't get out of the way, they're going to be roadkill. Sun has to change that perception. One way to do it is to take an aggressive stance and take the fight to Microsoft."
Enderle believes that many companies, frustrated with Microsoft's prices and stung by budget cuts are "kicking the tires" of desktop Linux. "But right now," he says, "companies don't have a vendor they can trust. Sun could be that vendor."
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In one sense, you've got to hand it to Sun. The company has always been known for its hard-core engineering, and it has consistently moved computing forward with products such as Java. In the midst of the toughest market in recent memory, Sun is shifting course radically with its desktop Linux offering and its nascent N1 program.
If nothing else, Sun is giving the technology world a shot in the arm. And when companies like Sun start pushing Linux on the corporate desktop, can organizations such as Dell (DELL: down $0.70 to $24.13, Research, Estimates), Hewlett-Packard (HPQ: up $0.01 to $12.95, Research, Estimates), and IBM (IBM: down $0.89 to $63.03, Research, Estimates) be far behind?
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