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Sun, AMD Announce Plans for Line of Low-Cost Servers

Posted on: Tuesday, 18 November 2003, 06:00 CST

Nov. 17--Advanced Micro Devices and Sun Microsystems today will announce a strategic alliance that could boost the fortunes of the struggling companies.

Sun said it will use AMD's Opteron processors in a line of low-cost Sun Fire servers that it will begin shipping in early 2004. The Santa Clara-based maker of network servers also said that it has developed versions of Linux, Java and its Solaris operating system to run on Opteron-powered servers.

Servers made by Sun operate corporate networks, conduct online transactions and run Web sites, among other things.

The news is a big boost for Sunnyvale-based AMD, which launched the first 64-bit Opteron processor in April. The powerful Opteron crunches data in chunks of 64 bits instead of the standard 32 bits.

The chip represents AMD's effort to gain a foothold in the corporate server market, where Intel has made big inroads against Sun's proprietary 64-bit architecture in recent years.

Since it launched the Opteron, AMD's biggest catch was IBM. But analysts have been speculating for months that AMD and Sun were natural allies. Among the small number of name-brand server manufacturers, Dell has never swayed from its commitment to Intel chips. Hewlett-Packard was a co-developer of Intel's Itanium, a 64-bit chip with a completely different architecture, and is said to be reluctant to fully embrace Opteron.

"I don't really think of this as any particular strike against any particular company," said Dirk Meyer, AMD's senior vice president of computational products.

The AMD deal also fills a gap in Sun's processor strategy. Sun and Intel formed an alliance to adapt Sun's software to run on Intel's 64-bit Itanium processors a few years ago, but the effort collapsed.

Sun then tried to go it alone with Solaris on UltraSparc chips, but it has been losing ground to low-end Linux and Windows machines that run on Intel chips.

Sun Chief Executive Scott McNealy said last week that Sun failed to understand that the Internet would spur a demand for computer processing that could be handled perfectly well by low-end Intel machines running Linux. Sun responded last year by embracing Linux and launched its own line of less-expensive Intel servers this year.

But so far Sun hasn't penetrated the Top 10 list of companies selling Linux servers, according to third-quarter data from market researcher International Data Corp. Sun posted a $286 million loss in its first fiscal quarter ended Sept. 28 because of extreme price competition that is hurting its core business.

For many years, critics have seen Sun's problems mounting in slow motion. Many have wondered whether Sun should continue to invest in its own proprietary microprocessors. The deal with AMD gives Sun a possible exit strategy.

"I'm incredibly optimistic that this is an incredibly good move for both companies," said Nathan Brookwood, an analyst with market research firm Insight 64 in Saratoga. "The people they compete with ... Dell and HP at the low-end, just don't have this arrow in their quiver." The deal may also help AMD make a bigger dent in the higher-profit corporate server market. After losing money for several straight quarters, it expects to be profitable again in the fourth quarter, mostly due to a rebound in personal computer sales and its new Athlon-64 chip for PCs.

If the AMD chips succeed over time, Sun may have an option to discontinue its UltraSparc. In the meantime, McNealy said Sun remains committed to its chip strategy, which will focus on putting multiple small processors on a single chip to handle many tasks simultaneously.

Sun executive Neil Knox said that Sun's customers don't want it to stop innovating. "They don't want us to abandon our technology," he said.

By Therese Poletti and Dean Takahashi

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(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.

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