The forces that forged the Suntel alliance

It may not rank among the more spectacular announcements by Sun chief Scott McNealy, but what the recent deal between Sun and Intel lacks in entertainment value it more than makes up for in potential user benefits.

Initial reports suggest Sun has the most to gain from the partnership, which will see Sun using Intel’s chips in its servers and Intel promoting Sun’s operating system, Solaris. Certainly, it should help Sun’s server business compete against HP, IBM and Dell, particularly in the low-end, standard high volume (SHV) market.

But whether Sun’s new-found affection for Intel processors is going to make any of those rivals quake in their boots is open to question. Sun is a relative new-comer to the SHV server market and is far from being a major player, so any market gains are likely to be marginal.

Where Sun may gain a more significant edge is on the software side. Sun’s Solaris operating system has a strong fan-base among both enterprise users and those in the systems integrator (SI) and applications development sectors.

With Intel pledging to help Sun port Solaris to the chip maker’s multi-core Xeon platforms, there is a distinct chance the wider OEM marketplace will get a well-known, popular, Unix-based enterprise OS that is properly configured and supported. Intel support for both the Java language and NetBeans applications development tools, both already core parts of many enterprise infrastructures, will be a big advantage too.

So, if Sun can live with the support revenues that this scenario might generate without getting twitchy about not having sold the servers, it should do very nicely out of the deal.

But while Intel looks like it is getting the more soiled end of the stick, initial impressions can be misleading.

The chip giant’s revenues took another knock recently and, such is the increasingly competitive nature of the x86 processor market, margins are only going to get thinner no matter how many millions of chips it manages to shift.

The SI channel appears to offer far greater profit-making potential, and a fully supported Solaris could prove to be just the lever Intel needs to persuade SI’s to invest in its hardware.

This alliance with Sun therefore gives Intel a crucial opportunity to offset increased competition from AMD by tapping into a higher margin, systems-based revenue stream.

The more ubiquitous server systems get, the more difficult it becomes for any of the major vendors to service all the different markets they sell into. The SI channel has grown rapidly on the back of this trend, which looks likely to accelerate as more users switch from a technology-based view of IT to a business-service view.

So the SIs – the firms with both specific market knowledge and increasingly trusted brands – are becoming the front line for hardware and software vendors like Intel and Sun, because they are the companies that users turn to first.