News

Sun's leadership change-up gets mixed reviews

• By John K. Waters
• April 25, 2006

Sun Microsystems co-founder Scott McNealy resigned his position as CEO on Monday after 22 years at the helm of the Silicon Valley-based enterprise systems company that created Java, developed the Solaris OS and Sparc microprocessors, and coined the phrase "the network is the computer." Current president, COO, and heir apparent Jonathan Schwartz took over as CEO with McNealy's blessing. McNealy will stay on as chairman of the board and full-time "chief evangelist."

Both McNealy and Schwartz stressed that Sun's strategy going forward would continue its current trajectory, and that the two would continue their close association. "He and I can finish each other's sentences," McNealy said. "We're very aligned."

Rob Enderle, principal analyst with the Enderle Group, isn't sure that close alignment is such a good thing for Sun. "Sun is ripe for a turnaround manager," Enderle says, "but [Schwartz] isn’t that kind of a guy. I think they should have chosen someone with a different skill set to return employee and customer confidence. I wouldn't expect to see a lot of change. Sun largely remains a damaged property and this [leadership shift] doesn’t fix that."

"But I don’t know who their alternatives were," he adds. "Sometimes it's better to go with the devil you know."

This leadership change at Sun has been rumored for months and comes in the wake of disappointing earnings for the company fiscal third quarter, which ended March 26. On the day McNealy announced that he would be stepping down, Sun reported a loss of $217 million for the quarter, compared with a year-ago loss of $28 million.

During a conference call with reporters and analysts McNealy and Schwartz were relentlessly upbeat about the leadership change, the compatibility of their individual visions for the company, and Sun's prospects going forward.

"I believe we're handing off…a fairly solid company," McNealy said. "We generated another big pile of cash last quarter, and we're very fiscally sound. With $4.4 billion in the bank, we've got the cash to play long-term."

McNealy headed off questions about the timing of the leadership transition, saying that he believed he could not step down after the dotcom crash ("post-bubble") until the company had stabilized, and that "it was going too fast to hand off during the bubble."

Asked whether he would be implementing any significant shift in Sun's strategy, Schwartz was quick to respond with an emphatic. "No." He adds, "Here is our vision: The network is the computer.”

But Schwartz also said that he would undertake a broader-than-usual review of Sun's business plan, though he insisted that he was not planning any drastic layoffs.

Schwartz, 40, joined Sun in 1996 with the acquisition of Lighthouse Design. In 2001 he organized the Liberty Alliance to respond to Microsoft's Passport sign-on initiative. He then served two years as EVP of software.

Schwartz said that he would need McNealy's support to "pull off the next big transformation at Sun," which, he said, "is all about growing to an opportunity that only seems to get bigger in front of us."