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JavaSoft insists it will make money

Under pressure to show real profits, JavaSoft insists that Hewlett-Packard's move won't derail its plans to make money.

Under pressure to show real profits, JavaSoft insists that Hewlett-Packard's (HPW) move to create its own Java Virtual Machine for embedded devices won't derail its plans to make money.

"We're not being hurt at all," said Alan Baratz, president of JavaSoft, a division of Sun Microsystems (SUNW). "It's close to end of the quarter, and I just got a report that has me pleasantly surprised."

Noting that JavaSoft has 100 licensees, Baratz said it won't change its price structure because of today's news. HP contends, however, that it's not the only maker of small appliances or devices that use embedded operating systems to bridle at JavaSoft's fees.

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HP announced today that it has created a Java Virtual Machine, required to run Java applets, for small devices and embedded systems that requires just 500K of memory, less than other JVMs. HP also said Microsoft (MSFT) will license HP's technology for one version of its Windows CE operating system for embedded devices.

At its JavaOne software developers conference next week, Baratz said JavaSoft will announce a "handful" of new Java licensees, but all will be "marquee names."

HP's new offering, which it plans to market aggressively to other vendors, could compete with PersonalJava, JavaSoft's offering for small devices, and with JavaSoft's offering for embedded systems. JavaSoft also sells Java for smart cards, called JavaSmart, and for desktop or server machines.

"It will make a little dent, not a big dent" in JavaSoft revenues, said Jon Kannegaard, JavaSoft vice president of products, indicating that HP's embedded Java announcement today surprised Sun. Impact on Sun's $10 billion in revenue will be barely noticeable, he indicated.

A dozen firms have licensed JavaSoft's embedded Java or its PersonalJava for TV set-top boxes, pagers, Web phones, cellular phones, and operating systems for embedded systems. Motorola a license for all its portable electronic devices. Other licensees include IBM, Nokia, TCI, Alcatel, Wind River, and Samsung.

Another 20 companies have options to license JavaSoft products for small devices because they have other Java licenses.

JavaSoft also garners revenue from its Java Web server, but the division stays away from products that would compete with its licensees or Java software developers. But Sun overall isn't shying away from that competition--those efforts are run out of its SunSoft division.

Analysts differ on how HP's most recent move will affect Sun's financial performance.

"They've blown at least part of the opportunity," said Dave Folger, a Meta Group analyst. "They've put such tight reins on Java that they've lost the participation of key players. Anyone who now goes to HP for the JVM will also not be in the Sun camp."

Still, he noted, Sun derives most of its revenue from server hardware, and HP's move won't affect that.

But HP's announcement on Java for small devices costs JavaSoft revenue from HP, a potentially big customer that makes tens of millions of printers every year. HP's resistance to JavaSoft's prices could have broader effects.

"Other potential customers could question the royalty rates Sun is asking for," said Philip Rueppel, research analyst, at stock brokerage Alex. Brown.

But Rueppel and others cautioned that HP's use of its own embedded Java might not have wide ripple effects.

"To the extent HP is the leader in printers, maybe it's one segment that Sun doesn't win," said C.B. Lee, senior analyst with Hancock Institutional Equity Services. "But even in printers, HP could be marginalized if Sun goes to HP's competitors."

JavaSoft's Baratz said his division has been in discussion with printer makers but declined to name any companies.

Stan Dolberg, industry analyst at Forrester Research, thinks that the HP rift points to broader problems with Sun's Java strategy. "It's not good. Javasoft on the one hand has this allegiance to Sun and on the other hand is the arbiter of what's in and what's out of the Java standard," he said.

Jim Mitchell, JavaSoft vice president for technology and architecture, said last month that the first embedded and PersonalJava products will appear within weeks.

JavaSoft also expects to ship an application server to support thin Java clients by midyear for Windows NT and Unix--but HP said today it has a similar offering now ready to ship.

Mike Ricciuti and Paul Festa contributed to this report.