Sun to Buy Struggling Thin-Client Vendor

Plans to integrate Tarantella with Solaris, Sun Ray

Tarantella Inc. is losing money and customers, but its thin-client technology found a potential savior last week in Sun Microsystems Inc., which is acquiring the Santa Cruz, Calif.-based company for $25 million in cash.

Compared with its chief rival, Citrix Systems Inc., Tarantella is on the ropes. For its 2004 fiscal year, which ended in September, Tarantella reported $12.5 million in revenue and a net loss of $15.7 million. In contrast, Citrix had revenue of $741 million during the last calendar year. The glaring differences in performance continued during the most recent quarter.

In addition, some of the reference customers listed on Tarantella's Web site are no longer using its Secure Global Desktop software. Two users reached last week said they had moved off the system, and a third is beginning to evaluate Microsoft Corp.'s terminal server software as a potential replacement.

One customer, John Pelling, head of IT services at Somerfield Stores Ltd. in Bristol, England, uses Tarantella's technology to deliver database applications running on IBM AIX-based systems to end users at the retailer's headquarters and 1,400 stores.

Pelling said he has generally been happy with Tarantella's software. But he had become worried about the company's future. Sun's pending acquisition of Tarantella "has to bring financial stability, which it has not really enjoyed," Pelling said.

He was uncertain about what the deal would mean for the technology, though. "It all depends on what Sun's intentions are, and that's not declared yet," he said.

Sun expects to complete the deal during the third quarter. John Loiacono, Sun's executive vice president for software, said during a teleconference that the company plans to integrate the Tarantella technology as quickly as possible with Solaris and its own Sun Ray thin-client system.

Sun will support Tarantella's existing products "as is," Loiacono added. "As far as existing customers, we will support those customers as their contracts have stated."

Positive Features

Tarantella's strength, according to analysts, is its ability to deliver mainframe and Unix applications to thin clients. Citrix also supports some Unix variants with its software, but it is largely seen as being focused on Windows-based applications.

Gary Hein, an analyst at Burton Group in Midvale, Utah, said he thinks Sun is more interested in Tarantella's management, provisioning and reporting capabilities than in its actual thin-client technology. Adding those features "will round out what they're doing with their Sun Ray line," he said.

Sun will also likely have to address problems reported by some former Tarantella users.

Jay Huber, an IT manager at Forte Communications Inc., a Chicago-based phone services provider, adopted Secure Global Desktop a year ago this month and provided a customer testimonial that Tarantella posted on its Web site.

Huber's testimonial was still on the site last week. But "to tell you the truth, I actually quit using their system about three or four months ago," he said. "I had a lot of trouble running it on the server, and their support was pretty bad." Huber switched his Tarantella users to Citrix's software.

Another user case study on the Web site involves the Robert H. Smith School of Business at the University of Maryland. But the College Park-based business school has stopped using Tarantella's software because of Windows and Java interoperability problems, said Ernie Soffronoff, its enterprise architect. It also is now a Citrix user.

For the quarter that ended March 31:
Tarantella $2.7M ($3.5M)
Citrix $202M $39M

Copyright © 2005 IDG Communications, Inc.

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