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SUN SEES LINUX ERODING SOFTWARE PROFITS

The global spread of free software such as Linux could erode software companies' profit margins and give computer hardware producers an edge, a top Sun Microsystems executive says.

Greg Papadopoulos, executive vice-president and chief technology officer of the company whose computers run networks and help power the Web, predicted that so-called "open-source" software development was here to stay, but he also said it was being distorted by attempts to commercialise it.

"The only reason that software has traditionally been such a high-margin business is that it has traditionally been proprietary," Papadopoulos said on Tuesday, referring to products from software giants Microsoft and Oracle.

"That same economics of software (are) not going to apply in a globally open software environment," he told Reuters in an interview.

"But last time I checked, you couldn't download hardware over the Web," he said. "Contrary to the ... conventional wisdom that software companies are the high-margin business in the IT sector, systems companies are now where the margin is."

Sun is the third-largest maker of powerful computers used to run the Internet after International Business Machines and Hewlett-Packard. But the company has lost ground to rivals recently as its sales have stagnated.

LINUX DISTORTED

The Linux operating system relies on a network of independent programmers to improve its software. Its users are required to share the computer code they create.

That is a dramatic shift in the traditionally secretive world of software development. It has won advocates among academics, programmers, corporate customers and some government agencies, despite continuing imperfections in the software.

One of the chief attractions of the Linux operating system is that it can be promoted by an increasing number of vendors, including Sun, IBM and Red Hat.

"There is a story which will be getting increasingly important to people over this next year, which is that in the Linux world the commercialisation of Linux is a regressive thing in terms of the economies of information technology," he said.

"There has been distortion of that process when you look at a company like Red Hat, which has built their franchise on open source technology, but they are now proprietary," said Papadopoulos, noting that the fees introduced by some vendors had undermined the original purpose of Linux.

Papadopoulos, who took over as Sun's chief technology officer from renowned technologist Bill Joy, said the company was focusing on simplifying its network systems to reduce the massive operating costs associated with IT.

"The big picture of our company from the global financial strategy is: I want to harvest dollars that are spent on people and do the engineering so that those dollars are spent on systems," he said.

Papadopoulos said this approach, aimed at improving systems engineering to limit spending on IT maintenance personnel, was also shared by Intel and Microsoft. He contrasted it with IBM's move into the IT services market.

"We want to destroy that economy and make it much more simple," he said.