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

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.