Buyouts, R&D To Help Sun Power Out Of DiveBuyouts, R&D To Help Sun Power Out Of Dive

SAN FRANCISCO--Sun Microsystems is trying to spend its way out of its 2002 sales slump, aggressively funding research and development and buying companies for their products, CEO Scott McNealy said during his keynote address at the SunNetwork conference here Wednesday.

"We're not standing around like a deer-in-the-headlights kind of company," McNealy said, despite a 31% decline in sales for the year ended June 30 and shares that trade at less than $3, compared with a 52-week high of $14.72. "A lot of people are saying, 'What's wrong with Sun?'" he said. "It's been tough on the down side of the bubble for those of you who are investors."

But McNealy said Sun--the largest supplier of Unix-based servers--is adding to its products capabilities that can keep it competitive. It spends 14% of revenue on R&D and will continue to bundle more software into its Solaris operating system. Solaris 9, released in May, contains Sun's application server and directory server. The company plans eventually to bundle portal software, a Web server, and E-mail and calendar apps with the product, McNealy said. Sun says it has shipped more than 300,000 Solaris 9 licenses.

Software sales are important because they can lead to systems sales for Sun. At the conference, Sun said General Electric Co. has purchased Sun servers and software to build an information portal for 250,000 employees and contractors.

McNealy also said Sun will continue to buy out companies using the $5.9 billion in cash and marketable securities it had on hand at the end of its fourth quarter. In July, Sun bought Afara Websystems in a deal that returns to Sun some of the original designers of its UltraSparc chip. McNealy says Sun computers featuring Afara microprocessor technology will "come in at the edge" of networks, at prices below "the 32-bit sweet spot" of its new LX-50 Intel-based servers.

Sun also said it plans to market network computers running the Linux operating system and Sun's StarOffice productivity suite to company call centers and other non-white-collar environments.