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Sun, Oracle Go Cheap

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By Rick Aristotle Munarriz (TMF Edible)
May 20, 2003

It's not all that strange to see Sun Microsystems (Nasdaq: SUNW) and Oracle (Nasdaq: ORCL) team up the way they did yesterday. In a pact that will bring everything from new Sun servers to a joint marketing campaign pitching a new "Oracle Makes Sun Unbreakable" slogan into the mainstream, it's easy to see why the two tech companies are strengthening their bond. They have a common enemy in Microsoft (Nasdaq: MSFT).

That's why lost in the shuffle of two self-assured CEOs hamming it up for the press to brag about Oracle's software running on Sun's Solaris and Linux-fueled servers is the fact that Sun will also be slashing prices on some of its current products while rolling out a new line of cheap servers.

Sun didn't do cheap before. If you thought so, maybe you had it confused with its share price, which has been stuck in penny stock heck since last summer.

Marching strong into the low-cost server market means posing for some ugly Polaroids of Sun butting heads with the likes of IBM (NYSE: IBM), Dell (Nasdaq: DELL), and Hewlett-Packard (NYSE: HPQ) -- and doing so with a margin-swallowing grin.

Just as a weekend story in The New York Times pondered a buyout of Sun by either Cisco (Nasdaq: CSCO) or IBM, here's cash-rich Sun ready to sacrifice margins and sales for the sake of unit volume and a shot at once again hanging out on the cool side of ubiquity's velvet rope.

In a money-strapped economy where companies are opting for inexpensive Intel (Nasdaq: INTC) powered 32-bit servers, it was probably awfully tempting for Sun to want in on the crowded penny poker table action. Sun wants to belong. It wants the market to be long. But this is a shortsighted move, because once you go cheap, it's awfully hard to go back.

Oracle Makes Sun Unbreakable? Sure. That's cool. But I've got a new slogan to mull over: "Cheap Makes Sun Unbankable."

Is Sun doing the right thing by entering the low-end server market? Will Sun rise again? And when? All this and more -- in the Sun Microsystems discussion board. Only on Fool.com.   

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