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Brave new world for Sun Tech firm offers technology deal to developing nations

Benjamin Pimentel, Chronicle Staff Writer
June 1st, 2004

Original Article:

Sun Microsystems has a bold sales pitch for developing countries: For as little as a few dimes per citizen, the technology giant would provide software to help run government computer networks.

The plan, to be unveiled today in Shanghai as part of the company's quarterly product rollout, seeks to help governments in nations such as Bangladesh and Mexico cut the cost of information technology networks.

The strategy would allow Sun to tap emerging markets, although one analyst called it a "fire sale" that underscores the tech firm's desperate attempts to gain market share.

"We looked at the simple economics of how we make this affordable to them, " Sun President Jonathan Schwartz said in an interview. "This basically allows a government to get engaged in the acquisition and distribution of technology to its state agencies on very, very favorable terms."

Sun's pricing plan takes into account a country's population and economic standing based on criteria set by the United Nations. For example, least- developed countries with populations of 50 million to 100 million will be charged 44 cents per citizen per year, while those with more than 100 million residents would pay 33 cents per citizen per year.

That means Bangladesh, which has 146 million residents, would be charged about $48 million a year.

A contract with Sun would give a government access to the company's Java- based software, which it could use for such tasks as connecting IT networks of public state agencies, offering services via the Internet and running official Web sites.

The plan applies only to national governments, which would also have to buy computer hardware and software application products separately.

The strategy expands on Sun's new pricing plan, in which business customers pay $100 per employee per year for access to the company's Java- based software products.

Schwartz said the developing-world strategy could represent a multibillion-dollar market opportunity for Sun.

The plan could also benefit poor countries, some analysts said.

"The pricing scheme and the simplicity of determining the costs might encourage governments to think about delivering these sorts of capabilities rather than letting the market forces take their shape," said Dana Gardner of the Yankee Group.

Analyst John Rymer of Forrester Research added that "if you're a government and you're trying to provide services through the Internet to millions of citizens, this is a more advantageous model."

Analyst Mark Stahlman of Caris & Co. said the plan also gives Sun an opportunity to define an untapped market and gain some advantage against such rivals as Microsoft and Intel.

"Clearly, the growth opportunities are manyfold larger outside of the U.S. market," he said. "There is a larger market opportunity in less penetrated regions to get around the structure that in the U.S. dictates that every desktop should be Microsoft and underneath every desk is an Intel processor."

But some analysts say it's unclear if Sun can pull off the plan.

The company has steadily lost share in the corporate tech market to stronger rivals such as IBM and Dell. Last month, Sun reported a $760 million quarterly loss.

Analyst Rob Enderle of the Enderle Group said governments may feel reluctant to do business with a company that many fear will soon become an irrelevant player in the technology market.

"The problem that Sun is trying to overcome is the problem of perceived obsolescence," he said. "At the rate that they've dropped in market size, governments and companies have been thinking of Sun as a company that is going out of business. ... This kind of fire-sale activity doesn't dispel that concern. It actually increases it. It makes them look like they may be desperate."

Rymer echoed that point, saying Sun must get enough government customers to buy into the plan -- a task made more difficult by questions about Sun's long-term viability.

"You have to drive volumes," he said. "It's a fire sale if the volumes are low."

As another example of tech giants' search for new markets in developing countries, the plan was also dismissed as a scam by Anuradha Mittal, director of the Oakland Institute, a policy think tank focused on development issues.

"The real issue is not of access to technology," she said. "The issue is of access to resources, so those countries can invest in their own populations. ... What they want is to have control over the technology, and the Third World becomes their market."

For Stahlman of Caris, the plan is another example of Schwartz's influence on the company. Viewed as Sun's rising star, Schwartz was recently promoted to president and chief operating officer after serving as chief of software.

"The computer business is in a completely new phase of growth," Stahlman said. "It isn't technology for its own sake anymore. It has really become more obviously the basis of the world economy. ... You've got somebody who ... has a broader imagination and can put a global business perspective on his own company's strategy at a time when that's needed."

E-mail Benjamin Pimentel at [email protected]