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Sun buys into low-end web device market [w/Cobalt purchase]

Sep 20, 2000, 13:29 (0 Talkback[s])
(Other stories by John Geralds)

By John Geralds, VNU Net

Sun Microsystems plans a $2bn stock acquisition of server appliance maker Cobalt in a bid to accelerate its entry into the burgeoning low-end web device market. Server appliances are targeted at small and medium sized businesses to help run websites and email applications. Cobalt servers also run the Linux operating system.

The acquisition will represent Sun's most expensive purchase to date, and Ed Zander, president and chief operating officer, said that Cobalt will help the company to "establish ourselves in low-end server appliances and immediately jump into the marketplace with a proven, world-class product offering".

Cobalt, headed by veteran Intel engineer Gordon Campbell, has about 300 employees and some 4000 customers worldwide. The company competes with Compaq, Dell and Hewlett Packard, which also makes server appliances.

According to analysts, the acquisition represents more than a head start in the internet appliance market because Cobalt offers an immediate presence in both the Linux and Intel platform markets - areas where Sun has failed to generate much interest.

Charles King, senior analyst at Zona Research, said: "While this will enable Sun to create an immediate presence in the low-cost server market [made up of] small and medium size businesses and small-time web hosts, it also allows Sun to easily and logically embrace what others might interpret as a less than subtle shift in corporate philosophy."

Cobalt's customers will also benefit from the company's products being backed by a vendor such as Sun. "We would not be surprised if Sun announces an upgrade programme for Cobalt appliance users who grow to need the full power and capabilities of Sun servers," said King.

Cobalt will become the server appliance business unit of Sun's network service provider division. The acquisition is expected to be completed during Sun's second quarter of fiscal 2001, which ends on 31 December.

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