Sun's (JAVA) deal with Microsoft (MSFT) is a sign of weakness

A funny things happened yesterday. Shares in Sun Microsystems (NASDAQ: JAVA), which have been trading up for two weeks, took at dope mid-day. The drop was fairly sudden and happened just after noon.

That would have been the same time that Sun announced it would be selling Microsoft (NASDAQ: MSFT) Windows pre-installed on a number of its servers. According to The Wall Street Journal, Redmond will get a license fee for each server. This was an odd turn of events since Windows competes with Sun's own Solaris system.

Both companies pledged that their server software would interact and work with new virtualization technologies that allow processing to be shared across servers and cuts hardware cost.

What happened to Solaris then? According to Sun, it would become a de facto standard for server operating systems, but the market wasn't buying it. The reason Sun's shares fell is probably because the announcement was a tacit admission that Solaris cannot pull Sun's growth out of the mud.

In the last quarter, Sun's revenue was flat. Of course, Sun does not have to pay Microsoft license fees on Solaris, so margins will be cut each time Windows is shipped on a Sun server. Sun will now have to pay out money for the privilege of using Windows. The market knows that.

But, it is better than hitching the company's wagon to a star that is setting.

Douglas A. McIntyre is a partner at 24/7 Wall St.