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Can Solaris 10 Make Sun Shine Again?

By Jim_Kerstetter Sun Microsystems CEO Scott McNealy celebrated his 50th birthday on Nov. 13 -- and two days later his company hit another milestone. It released what's easily its most important product in more than nine years. Called Solaris 10, it's an upgrade to Sun's (SUNW) flagship computer-operating system that's more than four years in the making.

With a $500 million research and development price tag, Solaris 10 is a significant step forward for techdom. It has a new system for sharing files and cutting-edge capabilities to make computers operate more efficiently. In short, it's the kind of innovation McNealy has been promising the market place for years.

BEEN THERE, DONE THAT. What's more, Sun is willing to give away all that technology for free. Customers will be able to receive Solaris 10 without paying a thing when it ships in January. By seeding the market with free software, McNealy hopes Sun will be able to sell other products -- storage equipment and corporate software and support-service contracts. He also hopes Sun will be able to undercut the pricing of low-cost rivals, most notably Red Hat (RHAT), which distributes a version of the open source operating system Linux.

It appears investors are warming to McNealy's new message. Sun's shares were up 4.73% to close at $5.09 on Nov. 15.

In a way, McNealy is celebrating his youth with Sun's unconventional approach. In 1983, Sun started giving away a computer program called the Network File System (NFS), which provided a new way for computers to share files across the network. It became a de facto standard for networks, and although Sun didn't make money directly from NFS, it expanded a market for computer workstations and servers that the outfit came to dominate by the late-1990s.

NOT CHOOSY. Of course, what happened next to the Silicon Valley computer giant is well known to the digital set. Sun was hit with a triple whammy in 2001: Both dot-com and telecommunications customers, which had fed Sun's rapid growth, stopped spending, while big financial services customers began dumping Sun equipment for cheaper computers that run on Intel-style computer chips and Linux.

Sun president Jonathan Schwartz openly admits the increasing use of Linux in server computers has most notably come at Sun's expense. The company suffered through three years of worsening revenues, until a slight upturn two quarters ago.

In Solaris 10, it appears McNealy & Co. have learned from the mistakes that exacerbated that long revenue spiral. Unlike earlier versions of the operating system, the first commercial version of Solaris 10 will run on computers made by everyone from Sun and longtime partner Fujitsu to machines produced by rivals Dell (DELL) and Hewlett-Packard (HPQ). It also will run on chips made by Sun, Intel (INTC) and Advanced Micro Devices (AMD).

PRAGMATISM RULES. Solaris 10 has the techies smiling, but it's the other side of the equation -- marketing and sales -- that's poses a question mark. The good news is Sun's sales force is receiving new incentives to reinforce the software message. If it sell services for Solaris running on a different computer maker's box, that salesperson will be compensated as though he also sold the computer.

It many sound look a subtle difference, but it drives home a message that Sun is more flexible than it has been over the last few years about delivering what customers want. For investors, that Sun execs have been overcome with a new sense of pragmatism may be the best news in years to come out of the oft-criticized computer maker. It remains to be seen if Solaris 10 is a belated birthday gift to McNealy. But the signs are promising. Kerstetter is a San Mateo correspondent for Business Week

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