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 Forbes_com Sun's Purchase Of Cray's Unix Server Business
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   The Transformers
Sun's Purchase Of Cray's Unix Server Business
Lisa DiCarlo, 05.06.02, 12:00 PM ET

It's interesting that one of the seminal events in the history of Sun Microsystems isn't included in its official corporate history. But without question, Sun would not be the company it is today had it not purchased--for pocket change--the Unix server business of Cray Computer in the summer of 1996.

At the time, Sun was a $7 billion company not even in the high-end server business. It had mainly stuck to its knitting as a leading seller of Unix workstations. But when workstation rival Silicon Graphics bought Cray, it created a problem for SGI. That's because Cray was a licensee of Sun's SPARC processors and Solaris software and sold high-end servers based on that technology. If SGI held onto that part of Cray, it would be lining the pockets of one of its biggest competitors. It needed to sell the unit--and Sun was only too happy to buy it.

"SGI was desperate," says John Shoemaker, a Sun executive vice president who helped broker the deal. "They were running out of cash and they needed to get the assets off its books." Consequently, he said, Sun paid "less than you would imagine" for the Cray division. He won't say how cheaply they picked it up but acknowledged that it was significantly less than $100 million.

Sun introduced its first server based on Cray's designs, the Enterprise 10000, in 1997--and it catapulted the company into a leadership position within one year. It didn't hurt that cash-laden dot-coms were popping up everywhere or that rival Hewlett-Packard had decided to de-invest in its Unix operations.

Today, Sun's server business and other products based on Cray technology pulls down many billions in revenue. The profits have fed the research and development machine to develop other strategic products like Java and iPlanet middleware. Its valuation--which has since taken a beating--opened the door to acquire companies that filled holes in its strategy.

"To try to measure it as a return on investment at this point isn't even meaningful because it's so huge," Shoemaker says. "This took us 100% into incrementally new markets. I mean, we had never sold a server for more than $1 million before."

Like other computer companies, Sun has been hit hard by the downturn the past year and it's had three consecutive quarters of losses on declining revenue growth. Its shares are down 54% over 12 months but up 143% (split adjusted) over five years--around the time Sun introduced its first high-end servers. During that time its total sales have more than doubled to $18.2 billion.

Still, Shoemaker says he never could have imagined that it would be the monster hit it turned out to be. "I'm unrealistic but I'm not that unrealistic."

Indeed, last year Salomon Smith Barney analyst Jonathan Joseph summed it up when he said: "It will go down as one of the best acquisitions in the history of the computer industry."

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Document last modified on: Sun, 12.October.2014 16:07:01