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Analyst suggests Dell-Sun alliance

Report says joining forces could help Dell reverse recent server market losses for machines running Linux.

A Wall Street analyst has suggested a partnership between Dell and Sun Microsystems would help both companies with their server strategies.

In a report Wednesday, Sanford C. Bernstein analyst Toni Sacconaghi said that joining forces could help Dell reverse recent server market losses for machines running Linux and for higher-end models using x86 processors such as Intel's Xeon. And Sun could gain an ally selling its Solaris version of the Unix operating system and its x86 servers using Advanced Micro Devices' Opteron processor.

"As radical and unlikely as it might sound, a partnership between Dell and Sun could be mutually beneficial," Sacconaghi said. The partnership could be modeled after the successful pairing of Dell with EMC to sell higher-end storage systems, he said.

"It is far from clear that the leadership of either company could stomach such a deal," Sacconaghi added. "This being said, the fact that Sun and Microsoft could put aside their differences so quickly (as did Dell and EMC) proves that it is possible."

The technology industry is consolidating into fewer, larger companies with acquisitions and potential purchases of businesses such as MCI, Retek, PeopleSoft, Veritas Software and Compaq. But that doesn't mean a Sun-Dell alliance would be easy.

The companies have several profound differences. Dell scorns big iron--the high-end servers that are a Sun specialty. And where Sun prides itself on its in-house research and development, Dell boasts of extreme efficiency in assembling technology from suppliers such as Intel, Microsoft and Red Hat.

Dell reacted coolly on the idea. "Our success...in the x86 market is due to our unwavering focus on our customers. Customers' growing preference for Windows and Linux on x86-based systems from Dell continues," spokesman Bruce Anderson said. And Dell recently decided against employing AMD's chips.

Sun declined to comment.

Sacconaghi believes direct competition between the companies has waned as Sun has dropped Intel servers and de-emphasized Linux in favor of Solaris. Through an alliance, Dell could compete better against IBM by beefing up higher-end x86 servers with Sun's Opteron-based Galaxy servers.

"Dell's enterprise business is a critical growth driver for the company. Re-accelerating this growth rate is a key priority for Dell, and servers are critical because they represent over two-thirds of enterprise revenue and drive most of storage revenues," Sacconaghi said.

And Sun could get a shot in the arm as it tries to expand into the x86 market. "As both the total Unix hardware market and Sun's Unix hardware revenues have declined every year for the last three years. growth in new in x86 hardware has become a key component of Sun's overall growth story," Sacconaghi said.