24/7 Wall St.

Maybe it was changing its ticker symbol to JAVA, but Sun (JAVA) has run up 20% in the last month. But, yesterday, a little after noon, the shares sold off. That was the same time that Sun announced that its would ship servers pre-loaded with Microsoft (MSFT) Windows. Microsoft will earn license fees though the deal.

But, Windows competes with Sun’s own server operating system, Solaris. Sun does not have to pay royalties on that. As The Associated Press points out "Sun is hitching its rebound strategy in part to the growing open-source movement in hopes that it will sell more hardware and services as more companies and programmers start using Sun’s free technologies."

So, why a deal with the dark forces in Redmond?  Because most enterprises want to run Windows, of course, and not some low-cost Solaris or Linux junk. Sun needs Microsoft Windows on its machines to help the company drive its turnaround.

Sun’s revenue did not move at all last quarter. Its small profit came from cost cutting. And, it cannot cut its way to oblivion. Sun’s shares fell yesterday because Wall St. saw that a partnership with Microsoft means that Sun’s Solaris strategy, a critical leg to its future growth, must not be working.

That means an upturn in Sun’s fortunes are not just around the next corner.

Douglas A. McIntyre