April 21, 1999 5:55 PM PDT

AOL deal drives Sun consolidation

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Sun Microsystems will consolidate its three software-related divisions into one or two because of upheavals caused by the AOL-Netscape merger and the related AOL-Sun tie-up, Sun's second-in-command said today.

The Sun-Netscape alliance, which calls for Sun to resell Netscape server software, has drawn hundreds of employees from the company's three software-related divisions, which deal with consumer and embedded technology, the Solaris operating system, and Java, said Ed Zander, Sun's chief operating officer and newly appointed president, in an interview. Among those committed to the effort is Mark Tolliver, the former head of the consumer and embedded division and now the leader of the joint venture.

"I liked what I had. I would have kept it for another year," Zander said. "The America Online-Netscape [deal] forced us to remanage."

Sun is in the process of figuring out how to accomplish the change, which Zander referred to as management reorganization rather than a business-related reorganization. The rank and file won't notice a difference, he said.

"We took the messaging, mail, and directory people out of Solaris. We took the NetDynamics server people out of the Java group. We had pieces of responsibility hanging," Zander explained of changes to date that are precipitating the company's intended consolidation.

In a related matter, the trend of increasing centralization that began at Sun last year is likely to continue this year. In 1998, Sun got rid of "fiefdoms" in the company, Zander said. "We made a lot of progress, but there's still a lot more to do in that space."

Sun chairman and chief executive Scott McNealy today transferred the title of president from himself to Zander. Zander said the change is mostly a "formality" that won't affect his job in charge of the day-to-day operations at Sun.

Although Zander said he believes McNealy "wanted to demonstrate his commitment to me," he said he didn't believe the move was intended to keep Zander from taking jobs leading Hewlett-Packard or Compaq, two major computing companies both seeking a new chief executive.

"I've known Scott a long time. He doesn't ever react to things. He's usually proactive," Zander said.

Zander said he believes last week's dip in Sun's stock--after Sun declared record revenue and another profitable quarter--was because Sun happened to report earnings at a time when Compaq's financial difficulties had made analysts pessimistic. "We had the wrong week for our earnings announcement," he said.

This week, though, IBM, EMC, and Microsoft have reported strong earnings, Sun has been talking to analysts one-on-one, and the stock price has recovered, Zander said. "It rejuvenated confidence that there are winners and there are not-winners," he said.

Sun has been beefing up its services business to match its powerful server products, Zander said, but products and technology are in Sun's DNA and will remain the company's core focus. Like IBM, Sun has found that services come with slimmer profit margins than hardware sales, he added.

The Sun-Netscape alliance will focus mostly on "middleware"--software products that help clients take advantage of the data and software on back-end servers. Separately, other Sun employees are working on helping incorporate Java 2 into the Netscape Navigator and Communicator products AOL inherited with its acquisition, Zander said. Part of that effort will focus on bringing Java's "write once, run anywhere" technology to the AOL Anywhere initiative.

Employees at Sun have to be flexible so the company can remain fluid in changing times, Zander said, and shouldn't focus too strongly on organization charts. "Our employees sometimes get too wrapped up in that. I have to organize in some way," he said.

 

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