Sun, Fujitsu eye tighter alliance

Both companies said they are continuing discussions that have gone on for years but declined to offer details of the current talks. A source familiar with the discussions, however, said Thursday that negotiations for a closer alliance are taking place and that some partnership details could emerge next week as Fujitsu provides financial information.

Japanese business newspaper Nihon Keizai Shimbun reported Wednesday that Sun and Fujitsu have agreed to integrate their high-performance server businesses. Sun spokeswoman Kasey Holman wouldn't confirm the report, but said that Sun Chief Executive Scott McNealy met with Fujitsu's chairman and former CEO Naoyuki Akikusa this week.

The two companies already are deeply involved. Sun and Fujitsu both build Sparc processors--Fujitsu's Sparc64 and Sun's UltraSparc--that are used in separate server lines that run Sun's Solaris operating system. Both companies are members of the independent Sparc International group that determines common elements of Sparc chips, and both have extensive future chip plans.

In addition, Fujitsu sells Sun's UltraSparc servers as its "S" line in Japan, even though it also has its own Sparc64-based PrimePower line and Sun uses Fujitsu keyboards and hard drives in its systems, said Fujitsu spokesman Mike Beirne.

A broader alliance could take several forms. Among the options, Sun could simply be looking for a second partner besides Texas Instruments to build its processors; the companies could be sharing engineering resources; or they could be moving chip or server lines closer together.

One certainty, though, is that financial analysts have been pressuring Sun to restructure to cut expenses and achieve profitability, and unifying processor or server work could achieve that end.

"Joint development of the Sparc processor alone could save (Sun) $200 million annually, while joint development of Sparc and servers could potentially save $300 million to $400 million," Toni Sacconaghi, an analyst at Sanford C. Bernstein, wrote in a research note.

The companies' statements were open-ended. "We're always looking for ways to expand and enhance our business relationship," Holman said. Fujitsu said that over the years, "the two companies have had a number of discussions about the benefits of working together," and while those discussions are continuing, "nothing has been decided with respect to expanding the scope of our current relationship with Sun."

The source familiar with the discussions, though, said Fujitsu's position that an agreement hasn't been reached should be taken as "virtual confirmation that negotiations are under way."

TI hasn't been notified of any changes in its partnership with Sun, TI spokesman Gary Silcott said.

"Nothing's changing from our perspective. It's full speed ahead in terms of our supply relationship with Sun," Silcott said.

One change has taken place, though, in Sun's chip group. Andy Ingram, who has been vice president of the company's processor and network products marketing, on Monday took over as vice president of marketing for Sun's storage group, Sun spokeswoman Sabrina Guttman confirmed Thursday.

TI and Fujitsu both are working on next-generation microprocessor manufacturing technology. Current high-end processors have circuitry with physical features measuring 130 nanometers, but next-generation manufacturing will allow smaller 90-nanometer features. (A nanometer is a billionth of a meter; when chip features shrink, more circuitry can be squeezed onto a chip.)

Fujitsu has been strong both in manufacturing and Sparc64 chip design, said Kevin Krewell, senior editor of Microprocessor Report.

"Fujitsu has been pretty good at knocking off chips in a relatively short time frame," he said. "They've been able to get from design team formation to design out the door in two or two-and-a-half years, which is a lot shorter than Sun's been able to accomplish with its UltraSparc line."

However, although "the 90-nanometer process Fujitsu is bringing to the market looks very good," Krewell thinks it "very unlikely" that Sun will drop TI.

Technologically, Sun and Fujitsu's hardware isn't compatible at present. Although UltraSparc and Sparc64 chips understand the same instructions, it's impossible to plug one company's chips into the other's servers because the chips have different standards for the physical connection, he said.

Further complicating the processor strategy is the fact that Fujitsu also has accepted Intel's high-end Itanium processor into its server line. "Fujitsu is riding a bunch of different horses at the same time. That takes a lot of resources, but so far, the company seems willing to do that," Krewell said.