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TECHNOLOGY FEATURE

Microsoft makes $1.6 billion peace with Sun Microsystems


Rob Lever | April 2, 2004

Sun Microsystems Chairman and CEO Scott McNealy (L) and Microsoft CEO Steve Ballmer discussing their companies' new cooperation agreement, San Francisco, April 2, 2004.
WASHINGTON — High-tech rivals Microsoft and Sun Microsystems buried the hatchet Friday, announcing Microsoft would pay $1.6 billion to settle antitrust and patent disputes.

The deal between the longtime bitter rivals came in conjunction with announcement of a broad 10-year agreement on technical cooperation which could help lift Sun out of its recent slump.

The peace deal marks a major shift in the tech landscape as Sun, a major maker of software and servers, has been one of Microsoft's fiercest critics and a force in the antitrust actions against Bill Gates' firm.

Under the settlement, Microsoft will pay 700 million dollars to resolve pending antitrust issues and 900 million to resolve patent issues.

"Our customers said, 'Stop the noise and start the collaboration,'" said Scott McNealy, chairman and chief executive officer of Sun at a news conference in San Francisco with Microsoft CEO Steve Ballmer.

"This is a good idea today, and it was a good idea 12 months ago," Ballmer said. "The fact is it presents a new opportunity to go out and work on things that are customer driven."

Separately, Microsoft will make an up-front royalty payment of 350 million dollars in a deal allowing for use of each other's technology and Sun will make payments when this technology is incorporated into its server products, the companies said.

The two firms agreed not to sue over past patent infringement claims and to start negotiations for a cross-license agreement. The deal will mean the companies will work on "interoperability" between Sun's Solaris operating system for servers and Microsoft Windows.

Analyst Joe Wilcox at Jupiter Research said the deal, while surprising in light of the history of the two firms, makes sense for both.

"Microsoft is dead serious about settling every lawsuit possible," Wilcox said in an online commentary. "Today's settlement with Sun is perhaps the best example to date, as the two companies are bitter rivals and have locked horns during several knockdown legal scuffles."

Microsoft will avert a messy trial what could feature "digging up of past behavior Microsoft is trying to forget," Wilcox said.

Sun, which makes server software that competes against Windows server software, now "has access to broader Windows information and an agreement that would extend to other server software," he added.

But Wilcox said it was unclear whether Sun would now join Microsoft in lobbying the European Commission to drop its antitrust sanctions imposed last month.

Ed Black of the Computer and Communications Industry Association, an industry group that has been a fierce critic of Microsoft, said the settlement was positive news.

"The enormity of the settlement is an indication that Microsoft knew that Sun had a legitimate and strong case against them," Black said.

"Companies typically do not willingly hand over two billion dollars to a rival in a settlement unless they know that they are likely to lose. Microsoft did its best to 'pollute' Sun's Java platform ... They are finally having to account for their misdeeds."

The move comes as Sun is struggling with competition both from Microsoft and from the open operating system Linux -- and with its market capitalization a mere shadow of its 2000 self. Sun posted a net loss of $125 million in its most recent quarter.

Sun said at the same time it will take a total of $475 million in charges over the next several quarters as it trims 3,300 jobs. The company warned that it now expects a third-quarter loss wider than expected, between 750 million and 810 million dollars.

"We are resizing the company to better align our cost structure," McNealy said.

Sun shares surged nearly 21 percent on the news to 5.06 dollars while Microsoft rose better than three percent to 25.85. –Sapa-AFP


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