Video: Tech titans bury the hatchet

updated 4/2/2004 2:34:37 PM ET 2004-04-02T19:34:37

Struggling server maker Sun Microsystems Inc. accepted a $1.6 billion settlement from Microsoft Corp. and said Friday it plans to cooperate with its longtime nemesis. (MSNBC is a Microsoft-NBC joint venture.)

The surprise agreement was accompanied by an announcement by Sun that it is cutting 3,300 jobs and that its net loss for the fiscal third quarter will be wider than expected. The cuts represent 9 percent of its total work force of more than 35,000.

The agreement with Microsoft ends Sun’s $1 billion private antitrust suit against the Redmond, Wash.-based software giant, which it had labeled an unrepentant monopolist.

“It puts peace on the table in a big way,” said Scott McNealy, Sun’s chief executive, during a conference call Friday.

Sun’s complaints sparked the investigation that led to the European Union’s recent record fine against Microsoft. The EU’s antitrust office said Microsoft has squeezed competitors out of Windows-related software markets.

As part of the deal with Sun, Microsoft will pay Sun $700 million to resolve the antitrust case, which was scheduled to go to trial in January 2006, and $900 million to resolve patent issues. Sun and Microsoft also will pay royalties for each others’ technologies.

“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, Microsoft’s chief executive officer.

Under the deal, the two companies will cooperate on technical issues involving improved communications among their competing server software products, which power everything from Web sites to corporate e-mail and database computers. Sun also agreed to sign a license that will enable its server software to interact more smoothly with Windows-based desktop computers.

Sun, once a shining star of Silicon Valley, also warned its net loss for the third quarter will be wider than expected. Sun said it expects revenue for the quarter ended March 28 to be approximately $2.65 billion. Net loss will be between $750 million and $810 million, or 23 cents to 25 cents per share.

Analysts polled by Thomson First Call were projecting a loss of 3 cents a share on revenue of $2.85 billion.

Sun’s biggest claim — and the main complaint in its antitrust against Microsoft — involved its Java software that allows other software to run on all computers regardless of the operating system.

Sun said Microsoft violated its license agreement by creating its own version of Java that was less universal.

Under Friday’s agreement, Microsoft “may continue to provide product support” for its version of the software, called Microsoft Java Virtual Machine.

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