February 10, 2004 8:50 PM PST

Sun to buy Opteron server maker, reclaim co-founder

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SAN FRANCISCO--Sun Microsystems has agreed to acquire Kealia, a start-up that designs servers with Advanced Micro Devices' Opteron processor and that employs Sun co-founder Andy Bechtolsheim.

"We have been working on a bunch of next-generation Opteron servers that seem like a really good fit for Sun," Bechtolsheim said at an analyst conference here Tuesday.

Sun Chief Executive and fellow co-founder Scott McNealy greeted Bechtolsheim, saying he could reclaim his employee No. 1 status and praising the engineer's design skills.

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Scott McNealy, CEO, Sun Microsystems

"He's the most prolific and exciting and talented workstation and single-board computer designer on the planet," McNealy said. "With this guy...designing Opteron servers, there ain't going to be nobody who has the class and breadth of computers we have."

Sun for years sold only its own UltraSparc-based computers, but the company has accepted "x86" chips such as Intel's Xeon and AMD's Opteron into its product lines. Now, it's using Opteron to lead its x86 charge in an attempt to catch up to x86 stalwarts IBM, Hewlett-Packard and Dell.

Sun announced its first Opteron model, the dual-processor V20z, on Tuesday, and said it plans a four-processor system in the next quarter. The existing systems, however, aren't based on Kealia's technology, McNealy said.

Sun said the acquisition, a stock-for-stock transaction, is expected to close by June but didn't release financial terms.

Rehiring Bechtolsheim balances out the departure in 2003 of another Sun founder, Bill Joy, who brought deep Unix experience to the company. The other co-founder is Vinod Khosla, who left the company years earlier.

The founders met at Stanford University, and indeed, the company's name derives from the acronym for Stanford University Network.

Bechtolsheim left Sun in 1995 to found Granite Systems, a company that networking giant Cisco Systems acquired. He left Cisco in 2003 to join Kealia.

Bechtolsheim agrees with Sun's opinion that Intel's Itanium is a dud. "The fundamental flaw here is that the (x86 server customers) didn't want to make a transition to a more expensive proprietary system, even if you call it standard," he said.

Sanford Bernstein analyst Toni Sacconaghi said Bechtolsheim's talent complements Sun's skills, but said he doesn't expect dramatic changes in Sun's plans. "The die has been cast. The strategic choices have been made," he said.

The move does send a message, though, said Illuminata analyst Gordon Haff. "It certainly shows they're bloody serious about Opteron," he said, adding that it's likely Kealia's 59 employees are probably the largest concentration of Opteron specialists outside AMD.

Also, to boost Sun's Opteron plans, Sun announced a promotion whereby customers get a free V20z if they buy a five-person license to use Sun's x86 version of its Solaris operating system, a development version of its Java Enterprise Server software, and Sun's accompanying development tools. The package costs $1,499 per year for three years.

Sun's embrace of Opteron doesn't mean the company is dropping its UltraSparc line.

At the conference, McNealy showed two prototype UltraSparc processors built with new manufacturing technology from Texas Instruments, which fabricates Sun's processors. Sun's UltraSparc IIIi and IV are built with circuitry that has features measuring about 130 nanometers, or billionths of a meter, but McNealy showed the UltraSparc IIIi+ and UltraSparc IV+, as McNealy termed the chips, built with a newer 90-nanometer process.

Having smaller circuitry means more electronics can be squeezed on a chip and makes it easier to run the chip at higher speeds.

The new chips will "approximately double" the performance of their predecessors, McNealy said. The UltraSparc IV+ is code-named Panther, he added.

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