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Sun Buys Cobalt Networks


And a way into the Linux market.

Sun Microsystems is presenting its stock-for-stock merger with leading Linux network appliance maker Cobalt Networks as primary being a way to accelerate Sun”s entry into the server appliance marketplace.

That\’s one way to take it. The other, while not mentioned by Sun in its press release, is that it gives Sun an instant entry into the Linux market. Unlike the quiet Solaris on Intel efforts, this move gives Sun not only its first Linux products, but it also marks the first time that Sun has made a splashy entry into the non-Sun hardware product market.

Under the merger agreement, every Cobalt common stock share will be converted into 0.5 Sun shares. In total, that adds up to an aggregate purchase price of about $2-billion.

This deal is being accounted as a purchase. Sun expects to close the deal in Sun\’s fiscal 2000 second quarter, which ends Dec. 31, 2000. The closing of the acquisition is subject to governmental approvals, Cobalt shareholder approval and customary closing conditions. Once the merger is done, Sun representatives say that Cobalt will become the server appliance business unit of Sun’s Network Service Provider organization under Sun executive VP John McFarlane. According to Ed Zander, Sun’s president and COO, in a statement, “Today we\’re acquiring Cobalt to establish ourselves in low-end server appliances and immediately jump into the marketplace with a proven, world-class product offering.” He added, “We think the demand for these high-volume, turnkey devices will explode in the next couple of years. Cobalt is our bet for the future.”

Continuing Cobalt\’s lawsuit against Apple, however, doesn\’t seem to be in Sun\’s plans. The suit has been based on Cobalt claims that Apple\’s G4 Cube apes the look of its Qube server appliance and that violated its trademarks.

Also–because of its announcement last week of the UltraSPARC-IIe, a 64-bit SPARC processor for low-end embedded devices–it is unclear how Sun is laying its money down in the appliance space. No mention was made on how this low-end (in volume, the 400MHz version will sell for US$145) chip will fit into Sun\’s new plans for low-end servers and network appliances. The Cobalt products, like its flagship product, the Qube 2, use 64-bit MIPs CPUs.

Stephen DeWitt, Cobalt\’s president and CEO proclaims that, “Cobalt’s world-class products are a perfect complement to Sun”s industry-leading server offerings. Our customers will benefit through access to the full range of Sun\’s engineering, sales, marketing and service resources.”

Matthew Szulik, Red Hat CEO, also is happy about the deal. “This is terrific news. We seen this as a validation of the open-source model since Cobalt is a Red Hat Linux customer.”

In early post announcement trading, Sun sank slightly. Cobalt\’s stock, however, exploded upward almost 14 points, more than 33 percent, on the news.

A version of this story first appeared in Sm@rt Partner.

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