Sun Microsystems is out to prove it's not the highest-priced computer maker on the block. At a press conference in San Francisco this week, CEO Scott McNealy plans to unveil a line of inexpensive blade servers, software designed to lower users' management costs and boost server capacity, and price cuts of up to 20% on its costliest computers.

"At the moment, people are buying smaller machines," McNealy said at the World Economic Forum in Davos, Switzerland, last month. But Sun's entry-level systems can cost up to $20,000, midrange servers as much as $350,000, and its most powerful RISC-based machines more than $1 million-all at a time when IT departments are buying more servers with Intel chips and Windows or Linux operating systems. "Price points are never as low as you want," says Victor Nilson, VP of enterprise architecture at Cingular Wireless.

Sun plans to unveil a line of inexpensive blade servers.

Sun is feeling the pinch. Revenue declined 32% during Sun's 2002 fiscal year ended last June. For its second quarter ended in December, revenue continued to decline, though gross margins increased slightly on better-than-expected large-systems sales. "The trick is for Sun to match the commodity market's speed of progress and falling prices," says Illuminata analyst Jonathan Eunice.

To get in line with smaller IT budgets, Sun plans to cut prices on 12-way and larger systems by 12% to 21%. It's also expanding its line of Intel-based servers. New Sun Fire B1600 blade servers will sell in Solaris-on-Sparc and Linux-on-Intel versions for $1,795 each, plus $4,795 for a chassis that supplies power and network connectivity to as many as 16 blades. A starter kit of one chassis and eight blades lists for $27,000, and a four-chassis, 40-blade package is priced at $175,000. Sun is also introducing a 64-bit blade server-ahead of rival IBM.

Sun executive VP Neil Knox pegs sub-$100,000 servers as a growth opportunity for Sun, something it sorely needs. Eventually, he says, blade servers could move from serving Web pages to handling more business-computing needs. For now, they're a good proving ground for Sun's N1 software, which aims to boost customers' bang for their buck by putting computers, disk drives, and networking gear in a virtual pool where they can be assigned to different jobs. Sun this week will start shipping its first N1 software, a blades edition of its provisioning server priced at $3,920 per chassis or $34,500 for a rack of 11.

A more general-purpose data-center edition of N1 is due this year. Cingular is testing the software to build virtual computers from idle processing, memory, storage, and network capacity. "You never have enough capacity for peak demand, but at the same time, it's hard to keep average utilization up," says VP Nilson, who manages Cingular's IT budget. "Workloads are so dynamic that they're hard to move. We'll continue to invest in Sun because they have the best total cost of ownership."

Sun needs to convince more of its customers that's true. N1 software, which incorporates technology Sun gained when it bought software vendor Terraspring in September, creates a model of customers' computing environments through XML descriptions of computers, storage devices, and networking equipment. Using a graphical user interface, users can marshal resources that fit the criteria for different jobs.

Sun this week also plans to ship a 12-way Unix server, the Sun Fire V1280, at a base price of about $127,500; a 1.2-GHz UltraSparc III processor; network-attached storage hardware optimized for its blade servers; and a Fibre Channel storage array designed to work with the new 12-way server.