Sun Launches Server That Runs on Linux

Sun Microsystems Inc., whose server computers power networks and Web sites, introduced a machine that will run on the free Linux operating system, a bid to stem a drop in sales as users seek less expensive products.

Customers can choose the LX50 server running on Sun’s Solaris software or the company’s version of Linux. Prices for the computer start at $2,795, compared with more than $1 million for some of Sun’s most powerful machines running on Unix software.

Analysts say Santa Clara, Calif.-based Sun, which has built its business selling servers that run only on its Solaris operating system and Sparc chips, has lost sales as cheaper machines based on Microsoft Corp.’s Windows software and Intel chips become more reliable. Sun’s decision to offer a Linux machine based on chips like Intel’s is an admission that so-called Wintel systems are a threat, investors say.

“They probably denied it for years, and this is saying, ‘We can’t just sit back and let them chip away at our franchise,’ ” said Ken Smith, who helps manage $30 billion at Munder Capital Management, a Sun and Microsoft shareholder.

Sun Chief Executive Scott McNealy said the company is gaining market share for servers that use the Unix operating system.

“We’re growing like crazy in Unix revenue with 58.8% market share. We gained 7.6% in market share year over year, while IBM lost 4.6 points,” McNealy said. “It’s a situation where you don’t have to outrun the bear, you have to outrun the other hikers.”

Shares of Sun fell 5 cents to $4.12 in Nasdaq trading.