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Ellison's NIC Co. to team with Sun

Ellison's startup will sell Sun's Cobalt Qube 3 server appliance with its New Internet Computer as a low-cost way for schools to get students onto the Net.

Sun Microsystems and Larry Ellison's New Internet Computer Co. plan to work together to market a PC alternative to schools.

The NIC Co. will market Sun's Cobalt Qube 3 server appliance together with the $199 New Internet Computer as a low-cost way for schools to get students onto the Internet. Both the Qube and the New Internet Computer use variants of the Linux operating system.

The move, billed by the NIC Co. as the first in a series of joint efforts, is due to be announced Tuesday at the National Educational Computing Conference in Chicago.

Ellison, Oracle's CEO, owns the bulk of the privately held NIC Co. Ellison co-founded the Internet appliance maker in January 2000 when the market for such devices seemed like it would boom. The unit was introduced last summer.

But Internet appliances, such as the NIC, have struggled to carve out a niche in a world of sub-$500 PCs.

"The market hasn't heated up to the millions of units like everybody thought," NIC Co. CEO Gina Smith told CNET However, she said, "in small business and education, there is still a need for really cheap computers."

Market researcher IDC recently cut its forecast for these devices, which resemble a PC but lack a hard drive and are used primarily to surf the Web and handle e-mail. IDC now sees shipments of Web appliances reaching 2.7 million units a year by 2005, down from an earlier forecast that 5.5 million devices would ship annually by 2004. About 150,000 such devices shipped in the United States last year.

Smith said that, by the end of this year, the NIC Co. is on track to have cumulatively shipped 100,000 units. Much of that comes from bulk deals, such as a pact to sell 10,000 of the devices to home security company ADT, which in turn will give them away to some of its customers.

Because NIC Co. has only 22 employees and spends virtually nothing marketing its products, Smith said the company can be profitable even with relatively modest sales.

"If we ship 100,000 (NICs) by the end of the year, we will be profitable--or at least break even," Smith said. "The idea is to stay small, hide out and wait for this market to happen."

The deal came about, Smith said, after she sent an e-mail to Sun CEO Scott McNealy. The two met for lunch and the deal was born, Smith said.

NIC Co. will offer packages with five, 10 or 20 NICs and a Cobalt Qube 3, with the prices ranging from $2,995 to $8,500 per package.

Sun also sells an Internet appliance of its own, known as the Sun Ray, that works with its Cobalt Qube server. That device has been sold primarily to businesses as part of a class of computing devices known as "thin clients" that have very limited abilities and rely on a central server to run programs.

It's unclear how hard Sun will be pushing the NIC, but IDC analyst Bryan Ma said that teaming with a larger company could help NIC Co.'s sales push.

"It helps to establish credibility as well," Ma said.

Ma also noted that NIC Co. has been able to create a customer base through donations to schools. "By doing so they've been able to avoid some of the weaknesses into the consumer market," Ma said.'s Stephen Shankland contributed to this report.