Newsmaker: McNealy on message

For Scott McNealy, fixing Sun Microsystems' problems is personal.

The chief executive has been working for years to put the server and software company back on an even keel after a period of explosive growth during the dot-com spending frenzy in the late 1990s. Although the server market once again is expanding, Sun's share of its sales continues to shrink, and the company's own revenue growth remains elusive.

But the 50-year-old McNealy said his Midwestern values require him not to leave the recovery to someone else. "I feel a huge sense of duty and loyalty," McNealy said. And though he's testy at times, he insists he enjoys the work: "It ain't a bad job."

In McNealy's opinion, much of Sun's problem is merely perception--compounded by flawed Generally Accepted Accounting Principles (GAAP) that draw attention away from the company's track record of cash generation.

To try to restore its position, Sun has many irons in the fire--among them, a newly open-source operating system, servers using Advanced Micro Devices' Opteron processors and a marketing campaign boasting of Sun's "sharing" values. McNealy discussed his views in a meeting at CNET News.com's offices on Wednesday.

Q: What would you say is Sun's biggest problem today and its biggest strength?
McNealy: I just came back from an executive advisory committee meeting with all our top ISVs (independent software vendors) and partners. If you listen to them, their biggest beef coming in was they didn't know what our strategy was. The biggest beef coming out was, 'Why don't you tell somebody?' When you're making money, you get to position yourself. When you're losing money, your competitors position you. So nobody knows our story. We've got to do it directly and on our own.

We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat. I'll be happy to compare Solaris vs. Red Hat.

It doesn't help that GAAP is a random walk through irrelevancy right now and that the media's primary guideline for quoting financials is GAAP, when we're 16 straight years of cash-flow positive from operations. We cannot have lost billions of dollars in GAAP and somehow magically ended up with $7.5 billion in cash and no SEC investigations. We didn't cheat. We didn't steal that money. People actually felt very good about paying for the invoices we gave them. There's something wrong with the deferred tax asset impairments and all the rest of it, but because it's a GAAP profitability issue, we haven't been able to position ourselves.

What are our assets? We're one of three processor architectures--Intel-AMD being one, Sun and Fujitsu's Sparc being another and Power being another--that are going to survive. We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat. I'll be happy to compare Solaris vs. Red Hat.

We'd love to hear what your strategy is.
McNealy: I'll start with the vision. We believe we're moving out of the Ice Age, the Iron Age, the Industrial Age, the Information Age, to the participation age. You get on the Net and you do stuff. You IM (instant message), you blog, you take pictures, you publish, you podcast, you transact, you distance learn, you telemedicine. You are participating on the Internet, not just viewing stuff. We build the infrastructure that goes in the data center that facilitates the participation age. We build that big friggin' Webtone switch. It has security, directory, identity, privacy, storage, compute, the whole Web services stack. We build that infrastructure piece.

We have a mission, and that's make money and grow. That allows us to realize our cause, and that is to eliminate the digital divide. We believe our strategy, way more than a PC on everybody's desk or a mainframe everywhere, is the way to make that happen.

We have a strategy that's very different from everybody else's, and it's community development. The way we say that is with the S curve in all our new literature. It's not for Scott, it's not for Sun, it's for "share." We're grabbing that word and saying, of anybody, we own the word "share." We own that space.

During the last earnings call, you said you need more revenue growth. What do you do to make that happen?
McNealy: We have massively focused on customer satisfaction in terms of field satisfaction and hardware reliability. We've never had higher customer satisfaction with respect to how our product works, how it stays up out in the field. That was not true back in the (dot-com) bubble. We were just getting the stuff out the door as fast as we could, and that wasn't a good thing.

Second, three years ago I had a 900MHz UltraSparc III processor that didn't work very reliably. Now we have UltraSparc IV and IV+ coming later this year, UltraSparc IIIi and IIIi+ coming later this year, both of which double the per-socket performance. We've got Opteron dual-core shipping now, and Andy's new machines are due out in the next six months. (Editor's note: That's Sun co-founder Andy Bechtolsheim, chief designer of the company's Opteron servers.) We've got the APL (Advanced Product Line) Sparc mainframe chip jointly developed with

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[JLBer]

Sun's problem

I hope they're not too late, but the fact is that the arrogance and stubbornness of those at the top (McNealy included) are why Sun is where they are.

There is absolutely no doubt in my mind that the combination of Solaris and Sun's mid-range and upper-range hardware is superior to all other server/OS combinations out there. Mature operating system; harder-than-rock solid; scales to more processors than most other operating systems combined; capable of handling just about anything that gets thrown onto it. But when it comes to looking towards the future, Sun dropped the ball - big time.

* Sun kept riding the anti-Microsoft train even after their customers started to tell them that the train wasn't going anywhere.

* Sun kept Solaris as closed source much longer than they should have. Linux has been out there for how long now? Five years? Ten? Solaris became partially open source a few weeks ago even though the Solaris developers in the world have been begging Sun to make the source available for years.

* Sun still has no clue about what "user friendliness" means. They release Java Desktop System to appeal to the end user while making it user-unfriendly. Compare what JDS comes with then look at true user-friendly distributions like SimplyMEPIS Linux. Wow. JDS lets users get easy access to Star Office. That's about it. MEPIS puts hundreds of utilities and applications right on the menu. There is no comparison. When it comes to user-friendliness MEPIS Linux completely decimates Sun. For whatever reason, Sun just can't comprehend that the non-geek dwarfs the geek market by orders of magnitutde, yet Sun still designs Solaris for geeks.

* Sun's hardware has always been {censored}ing expensive just because of the Sun brand name. Sun continued that even after companies were getting rid of Sun workstations in droves. Let's see here. A 3+ GHz (enter brand name) PC/workstation loaded with a huge hard drive and gobs of memory for less than $2,000 or a 1.2 GHz Sun Blade with 1/2 the memory and 1/2 the hard drive for $5,000. Can you say "no brainer"?

Even now, a 650 MHz Sun Blade 100 **STARTS** at $1,350. I just within the past two months built a crushing Athlon 64 3200, 1 GB RAM, GeForce 6600GT, and 360 GB of total drive space for less than $1,000. If I built the same kind of system that was 100% compatible with Solaris x86, I'd have a homebrew system that CRUSHES current Sun Workstations in that price range. Oh, wait -- there ARE NO Sun workstations in that price range.

It all seems to me that McNealy and Co. rode the "Sun brand name" gravy train far longer than they should have. It's time that they not only got off that train but also let it run off the broken bridge over the gorge ahead so that they can build a new train - one that the public is more willing to ride - with MUCH lower ticket prices, more fringe benfits, and comfortable seating for everyone. (Okay, that the end of the train metaphor.)

Sorry for the novel, but I needed to get this off my chest. Sun's clueless. That's the whole problem. They're completely clueless to the fact that we're no longer in the period before the tech bubble burst. Customers want more for less and Sun's not delivering on that.

Enjoy, Scott!

Scott needs to stop railing against GAAP and focus on the real problems facing his company. Sun?s market share across the board continues to decline, and the issues he and Sun face are all of which are his own creation. For example - in StorageTek they've made yet another strategic blunder, with an acquisition in an area that won?t deliver any real growth over the long-term. Sun continues to lose money, and now they have depleted half their cash hoard - money they'll need to survive over the long-term.

What?s more, Sun's track record in storage (see IDC numbers)and acquisitions (see Cobalt) has been pitiful over the years -- it's highly unlikely that they will make good use of StorageTek assets. Scott boasts about picking up several thousand services specialists, but the reality is that StorageTek?s services business is geographically weak, and focused primarily on low-margin break/fix issues. Scott also talked about leveraging StorageTek?s expertise in mainframes, but IBM?s mainframe business has been declining of late, and it?s unlikely that Sam and his boys will have any desire to play in the same sandbox with Scott anyway.

Sun expects the StorageTek deal to add to their profit, but this won't take place for another 18 months -- drag on the bottom line until then. In the interim, customers will suffer and look elsewhere for server and storage solutions, and the inevitable decline of market share will continue for Sun. One thing that will fit in nicely with Sun ? StorageTek?s notoriously low employee morale ? misery truly does love company - enjoy, Scott!

Scott, What About OSX?

McNealy:

"We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat."

See, this is part of the problem. Scott doesn't even mention OSX, as if Apple were the one having market problems instead of Sun. Did Scott miss the big Apple-Intel announcement? Why hasn't Sun tried partnering with Apple?

The answer is that Sun likes to try to define market reality while ignoring what people are actually considering buying. As long as Sun keeps playing these games of ignorning what is really going on in the market, while trying to get people to believe Scott's spin, the problems at Sun will persist.

[mboaglio]

processor roadmap failure

I think the worst desicion Sun had made was to stop developing processors with more computing power per core.
As a long time Sun user (over 80% of our datacenter is over Sun systems), we were forced to start looking over IBM and HP for our Oracle databases.
If you licence Oracle per processor (sometimes is the only way to go), you have to pay more than the double of the cost of doing the same thing over other vendors.
This is because the Ultra sparc IV has two cores that count as a separate processor for Oracle licensing.
Without getting too techical, if you look roughly at TPMCs figures for SPARCS vs POWER5 or ITANIUM (from a teorethical one-core point of view) ... SPARCS have 1/2 of the computing power of the other two.
This has a huge impact when you are analyzing TCOs triggered by the need to replace an old Oracle system.
My guess is that Sun will be losing their Oracle customer base in the following years if they don't do something with their processors, or make Oracle do something about licensing!

Geeks will survive

When we talk about Sun, one lasting topic is
Sun is falling, this theme has been on for almost 20 years!
Just hope Sun can continue to amaze the Sun haters/IBM lovers by providing new innovations and offerings, such as the open solaris!
The world will be better off if Sun stays above the horizon, competition is good and choice is good!

SALES are hurting SUN

Let me start with the PC disclaimer, I like Sun and their products. However, I make my living from Microsoft?s products. Currently, I am working a contract in Iraq clearing up a Microsoft deployment.

From my seat, Sun?s biggest issue is SALES!

Have you ever tried to deal with Sun?

It isn?t easy trying to get Fortress Sun to answer a SMB call. But why should I have to beat the fortress walls down? They should make it EASY to work with them. Instead, you need the decoder ring, and the secret handshake to get their sales staff to answer a question.

I finally did speak to a pleasant sales person (after 10 weeks). She was very cordial and while she didn?t know anything about Sun Ray technology, she said she would look into it. I sent the link to their Sun Ray pages so she could research it. One day, I hope to hear back?

Sun took the same approach as Apple, integrate hardware with a great OS and control the environment. The argument from Steve Jobs is; ?Being BMW with 5% market share is not so bad. Who wouldn?t want to run BMW??

Actually, a better analogy for Sun would be Oshkosh trucks. They are a powerful player in their niche, with a product that their core market knows, but the rest of the world has no clue to. With a dedicated group of engineers and workers rolling out the best product in their small niches, they are on a solid growth path.

Once you get Sun configured, it is solid. Techies seem to know this, but techies only suggest, they do not cut the checks. Sun will never be IBM or Microsoft, nor do they want to be. However, they need to get the market moving for the niches they want to dominate. Thankfully, they have matured past beating up Microsoft.


I received an offer for a free Sun server as a developer last week, if I meet their conditions. $50,000 in start up capital or some other choices were available to receive their offer. If I had $50,000 in start up capital, I wouldn?t need a free server.

Meanwhile, I just renewed my Microsoft Action Pack subscription. More software than I could ever load for $300.00. I can run my entire business and test applications all day long with it. Now that gets a lot of small consultants moving towards their products.

TIME is your enemy. Get a small unit to move quickly! Has anyone at the C level been to a Toyota design shop or factory? Your product line is being refreshed but way behind the other players. Your main competitor is not IBM or HP, it is TIME. And right now, you are losing.

Where is the Gorilla.sun.com web site? Who is pushing the smaller markets at Sun? What VP is charged with creating new markets? They need to grow demand from the small/midsize markets. Have you looked at donating Sun Ray setups to school districts? Stop selling the stuff at a discount at the end of its life on E-bay. Install it and show new customers what it can do. All of the Fortune 1000 have built their Oracle warehouses. The small markets need to be attacked and attacked HARD!

Pre-bundle your offerings. Make it EASY to deploy the systems in a SMB. Offer standard packages. It shouldn?t take a $300/hour consultant to install a server. That, with the hardware margins, is just too much for a SMB to understand from a value perspective. If a Windows IT person can not integrate it in a weekend, it is not ready to ship to a SMB.

Get real on your workstations or dump the product line. Subcontract them to someone who can work with AMD and get your price/performance credible for the desktop or partner with Apple.

Finally, I emailed the saleswoman at Sun about the market here in Iraq. Similar issues involving security, etc. I asked if there was any way to get a demo unit to prove it works to a Microsoft trained staff/client base. I think she is still laughing. Too bad too, there are hundreds of laptops that could be replaced.

On Message? What Message?

I read it twice but I can't see how any of this gets Sun out of
commodity hell. The Webtone switch that Scott talks about is
being built on Intel, Linux/BSD, PHP, Apache, and even open-
source Java (for which Sun gets no $$ GAAP)... On the other
side: Microsoft is playing the integrattion game from desktop to
office productivity to infrastructure server application and they
are doing it very well too. They have the users and the assets...
and say what you will, they have the end to end "vision". So can
someone summarize why Sun will be more relevant in the
future? And why the "Microsoft relationship" helps (except with
the $$ GAAP issues)..

[toddbernhard]

Say what? "32 bits good enough"

Sun was 64-bit in 1994...with the Ultra 1. (I was with Sun from 1988 to 1993, and a contractor from 1993 to 2004).

Bit of a stretch to say Sun was behind the curve on 64-bits.

In fact, the Sun Ultra 1 shipped just a month before the Nintendo 64, which was a 64-bit machine, BTW...even kids knew 64-bits was better than 32, long before Intel caught up.

[toddbernhard]

Solaris runs on x86!

Sheez, I guess Scott was right that the message isn't getting out.

Yes, Solaris runs on x86 PCs, and has for years. First it was free, then $100, but now, Solaris 10 is open source. So you can download it and run it at no charge. Said so in the article, and OpenSolaris.org, so on.

[toddbernhard]

Wow! $895 Opteron announced today!

And I thought $1495 was reasonable! Sun just announce an $895 Opteron screamer today! Price is no longer a valid criticism.