Sun Opens a Door, Sells Windows

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But such interoperability also has its risks. For example, it could make it easier for customers to migrate jobs now done on Sun gear to cheaper Windows alternatives. And Sun's server rivals will surely try to convince customers that Sun, one of tech's proudest innovators since it was founded in 1982, must no longer be creating much of value from its $2 billion per annum research-and-development budget. If Sun has fallen so low that it must rely on distributing outside technologies to maintain sales, why not go with a company with more efficient distribution capability?

Sun's Sunny Day?

So what's in it for Sun? For one thing, volume. That's critical right about now. Having hit profit goals laid out earlier in the year, the main concern of many investors now is whether Sun can pump up its revenue growth. Fowler notes that Sun's sales of x86 machines have risen for seven straight quarters. Reselling Windows could only help maintain that momentum, especially after Sun brings out new versions of its Galaxy line of servers.

Analysts say selling Wintel PCs will do little for Sun's bottom line. While volume enables Sun to spread fixed costs over greater revenue, the margins on each Windows PC will likely be minimal, says Roger Kay of Endpoint Technologies Associates. "Margins aren't what they used to be in the server business," he says, and Sun lacks the economies of scale to take on the likes of Dell and HP at their own game.

But the real win could be farther out in the future. Schwartz's reason for hooking up with Microsoft, Intel, IBM, and others is to remove incompatibility as a reason for existing customers to drop Sun—and to make it easier for prospective customers to give Sun a try.

New Products on the Horizon

Increasingly, that will include new kinds of Sun products. In a recent interview, Schwartz said that a major focus for the company will be creating new products on top of Solaris—not just servers. The first example is Thumper, a large-scale storage device that's built around Solaris and ZFS, another open-source program for managing files.

The product, which sells for $50,000 and carries 65% gross margins, is being used by AT&T (T), eBay (EBAY), and others to help store the never-ending tide of Internet traffic. Schwartz says the product is on track to hit $100 million in sales this year. "If it were a private company, we'd be preparing to go public right now," says Schwartz. And he hints that the company may soon unveil a Solaris-based networking product as well.

Over time, Schwartz is betting that Sun can pull all these products together to provide a Solaris-based underpinning for entire data centers, expanding on Sun's role in recent years as primarily a server specialist. Rather than cobble together cheaper alternatives for the various components of these operations, Schwartz is betting such Solaris-based operations will be more capable, and more cost-effective, than those built on Windows or any other kind of software.

If the company can make that vision a reality, today's move to be more in sync with the current standard can only help Sun expand its opportunities. But if Sun doesn't deliver the technical goods, it will make it all the easier for loyal customers to jump ship should they finally lose faith.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.