April 24, 2006 2:00 PM PDT

McNealy steps down at Sun

Sun Microsystems co-founder Scott McNealy has stepped down as chief executive, and has been replaced by President Jonathan Schwartz, the company said Monday.

McNealy, who will stay on as chairman, was one of four co-founders of Sun 24 years ago and has been CEO for the last 22 of those. Since then, he has been a strong and often contrarian voice for change in the computing industry, but in recent years his vision hasn't translated into financial success.

"Jonathan has risen to the top of the class, and he is ready," McNealy, 51, said in a conference call. The move was planned, he added: "It's part of our ongoing succession process we've been working on since my days at the (General Electric) board."

Scott McNealy Scott McNealy

Schwartz, 40, said the main difference under his leadership will be a greater emphasis on "growth and financial performance, now that the technological performance and customer performance is back at a level we think is reasonable," speaking on the conference call.

"My team is going to be more focused on growing the business, finding new customers, seeking the new adoptions, finding the new opportunities around the world," Schwartz said.

"We're not planning on changing the strategy," he added.

The change makes sense, said Illuminata analyst Jonathan Eunice, who likened Sun's move to a sports team's offensive coordinator becoming head coach. "Jonathan's been the one calling the plays for some quarters now," he said.

McNealy will continue his active role at Sun. "In the next phase, he will be more actively involved with the customer base than he previously was," Schwartz said.

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Changing of the guard
Jonathan Schwartz takes the helm from Scott McNealy at Sun

Schwartz now is CEO and president, and the chief operating officer role has been phased out. "I have no intention of having a COO," Schwartz said in an interview.

Rumors have swirled in recent weeks that McNealy would step down, with flames fanned by the return of Chief Financial Officer Mike Lehman and his declaration that he would "take a fresh look at everything."

More changes are coming as Lehman, Schwartz and McNealy evaluate Sun's options for the next fiscal year, which begins in July. But investors clamoring for major cost cuts through extensive layoffs will likely be disappointed, Schwartz said.

"The sentiment is that there needs to be, or will be, a significant 20 percent or plus work-force reduction," Toni Sacconaghi, an analyst at Sanford C. Bernstein, said on the conference call.

Schwartz's response was: "There's no plan whatever...of the cut you referenced."

McNealy said he'll be actively engaged in Santa Clara, Calif.-based Sun, including in his new role as chairman of its Sun Federal subsidiary, a role previously held by Clark Masters. And he looks fondly at his role in the industry.

Listen up

McNealy's view
Sun co-founder says time was right to step down.

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"Sun has been a labor of love for me for since 1982, and it has been an honor and privilege to serve as its CEO for the past 22 years. We've helped shape the industry as it is today, and the opportunities before us are immense. I look forward to a smooth transition and to working with Jonathan on company strategy in my continued role as chairman," McNealy said in a statement.

"Since joining Sun in 1996, Jonathan has been a driving force within the company," McNealy said, pointing to streamlining and major acquisitions.

CONTINUED: Insiders headed out…
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Job Well Done
Scott has done a great job as the leader at Sun. He has created a multi-billion dollar company that serves the computing needs of almost every industry in every corner of the world. He's a hard act to follow, but Jonathan is also a great leader. Thanks Scott for all of the energy, enthusiasm and candid leadership.
Posted by corporate radical (1 comment )
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Sun's new CEO has a ponytail?
Posted by eric.meyerson (22 comments )
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It's what's IN his head that counts, and not what's on it.
Posted by mike.gw (942 comments )
Link Flag
Please copy edit this story
Posted by rtwaters (3 comments )
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Sun was suppose to be the Dot in DotCom
But all Scott did was trash Microsoft, endlessly. They lost focus.
Posted by bobby_brady (765 comments )
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Good Riddance!
Scott should have been gone years ago. He may have been the right guy for a different time and age, but it's clear he was the wrong guy for post dot com Sun.

Didn't Sun post "negative earnings" (cough, cough) for something like 17 straight quarters? How many years has Sun's stock been hovering at $3-$6?

Under Scott, Sun believed it was IBM, a company capable of competing in almost all markets and shooting in all directions -- this was and is unsustainable for Sun. Their inability to monetize or profit substantially from Java is just sad. At least IBM is clear about how they intend to get returns on their ample open source / Linux investments and it's working to soem degree.

It was also clear that Sun lacked any clear strategy for several years (I still think it's cloudy). Examples: Solaris for x86? Killed. Linux? It'll never compete with Solaris. A couple years later: Solaris for x86 is reborn and it's better than Linux...of, but we love Linux too. You can even run Windows on our servers! ***?!!? Shooting in all directions desparately is not a strategy.

Sometimes it's the CEO's responsibility to face facts, define core assets and dump everything else in an effort to focus and re-grow. Scott never had the humility to do this, and that's why the latter half of his tenure was a total failure.

-Mister Winky
Posted by Mister Winky (301 comments )
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Clear strategy?
Sun DID have a clear strategy. It was attacking Microsoft.
Almost everything Sun did in the last ten years was just to hurt Microsoft (Java, Staroffice, the Javastation, etc.). And it is OK to do things that negatively affect the competition as long as it is to benefit your bottom line. But investing money in attacking another company without any direct benefit to your finances is simply irresponsible.
It was a clear strategy. it just wasn't any good.
Posted by Hernys (744 comments )
Link Flag
Message has been deleted.
Posted by Hernys (744 comments )
Link Flag
Software is Scott's Achilles Heel
He just doesn't get software. Sun is the company who pioneered the idea of network computing, drove the development of Java and XML, called attention to the value of software standards, and yet has failed to really monetize these key areas. Scott has done great at making Sun a hardware success, but their software strategy is a mess (which also makes me question Schwartz).
Posted by R. U. Sirius (745 comments )
Reply Link Flag
When You're the Dot in Dot Bomb ...
sooner or later (and usually sooner), you're gonna wind up lookin' like Wiley Coyote when an Acme bomb goes off in his face (except it looks and hurts a whole lot more than in the cartoon). Sun's problems (along with a lot of other companies, dot-bombs and stalwarts alike) were masked by the unsustainable run-up to the inevitable Bubble That Went Blah, and the precipitous drop just made things worse in these, The Dreaded Out-Years. Overcapacity making Things No One Wants or Needs Anymore is not a strategy, and the More of the Same that we're hearing from Mr. Ponytail makes me glad I don't own any Sun stock.

All the Best,
Joe Blow
Posted by Joe Blow (175 comments )
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