Sun Reverses Course And Settles With Microsoft

Sun Microsystems reversed course Friday, reaching a sweeping agreement under which longtime rival Microsoft will pay it nearly $2 billion to settle longstanding litigation and the companies will collaborate on future technology.

Sun also said it expects to post losses of as much as $810 million in its just-completed third quarter, and plans to cut 3,300 jobs, about 9% of its workforce of more than 35,000. In addition, the struggling vendor named Jonathan Schwartz as president and chief operating officer.

Under the settlement, Microsoft will pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues. In addition, the companies will pay royalties for use of each other's technology, with Microsoft making an up-front payment of $350 million. Sun is expected to make royalty payments to Microsoft when Microsoft technology is incorporated into its server products.

"This agreement launches a new relationship between Sun and Microsoft, a significant step forward that allows for cooperation while preserving customer choice," Sun chairman and CEO Scott McNealy said in a statement.

"Our companies will continue to compete hard, but this agreement creates a new basis for cooperation that will benefit the customers of both companies," said Steve Ballmer, CEO of Microsoft, in a statement.Under terms of the agreement, the companies will have access to aspects of each other's server-based technology, and will use the information to develop new products that will work better together, they said. Initially, the work will center on Windows Server and Window Client, but will also include other areas such as E-mail and database software. As a result, information is expected to be shared between Microsoft Active Directory and the Sun Java System Identity Server, resulting in less complex and more secure platforms.

Sun has agreed to license the Windows desktop operating system communications protocols, and Microsoft will continue to provide support for Microsoft Java Virtual Machine that customers have deployed in Microsoft products.

The companies announced Windows certification for Sun's Xeon-based severs and said certification of Sun's Opteron-based systems is "moving forward."

Sun and Microsoft also pledged to work together in the future to improve technical collaboration between Java and .Net technologies.

The agreement settles Sun's complaint over Microsoft's server communications that led to the European Union's ruling against Microsoft last month. That ruling also was based on Microsoft's bundling of its media player with Windows, though Sun did not play a role in that complaint. "Sun is also satisfied that the agreements announced today satisfy the objectives it was pursuing in the EU actions pending against Microsoft," Sun said in its statement.The agreement is an unprecedented change in the relationship between the companies. McNealy has often lashed out against Microsoft, calling it a monopoly. But the anti-Microsoft talk has quieted as Sun struggled to post a profit and the companies worked at resolving the issues between them.

In announcing its preliminary third-quarter results, Sun said it expects revenue for the quarter that ended March 28 to be about $2.65 billion, with a net loss in the range of $750 million to $810 million, or 23 to 35 cents per share.

The job cuts, along with capacity reductions by the company, are expected to result in a charge of $475 million that will be spread over the next several quarters, including a $200 million charge in the third quarter.