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But McNealy thought the time was right for the change, and Sun's board agreed to it in a meeting Friday. Thus ended McNealy's 22-year tenure as CEO of the Santa Clara, Calif., company.
For years, investors have put pressure on McNealy to get Sun's financial house in order and so boost its share price, especially after the dot-com bust. The Sun co-founder argues that now the job's mostly done and that it's time for Schwartz to reap the benefit.
Schwartz has steadily ascended the ladder at Sun since it bought his company, Lighthouse Design, in 1996. In 2000, he was named vice president of corporate strategy. In 2002, he rose to executive vice president of software. The biggest step was his taking up the roles of president and chief operating officer in 2004.
The two Sun leaders discussed the executive changes with CNET News.com's Stephen Shankland a few hours after Schwartz's promotion was announced.
Q: Scott, if things are going so swimmingly, you could have waited another couple of quarters, perhaps, and stepped down in triumph and glory. So why right now?
McNealy: Because the only responsible thing is to let the new guy get all the triumph and glory. My legacy is going to be written four years from now, when, as the largest individual shareholder, I'm sitting on a big chunk of stocks, sitting as chairman of the board, and talking about what a great job I did hand-picking and hand-developing and stewarding and coaching Jonathan through one of the greatest growth areas in the history of the company. And as chief of evangelism, I'm going to take most of the credit for the big sales wins anyhow.
(Jonathan) has worked hard to get the company stabilized and get it all worked out. I don't need any more glory. I'm very comfortable in the legacy of what I've done in the first 24 years here at Sun. I think I'm going to be even more comfortable with the next 24-year legacy.
Q: You've said you wanted to wait until you had the "Galaxy" x86 servers out, the "Niagara" UltraSparc T1-based servers out, and you had Solaris open-sourced. Is there anything else you wish you'd accomplished before stepping down as CEO?
McNealy: When Jonathan and I sat down, I said these are the things I want to get done. We wanted to have the open-source database strategy worked out. We got the StorageTek and SeeBeyond stuff worked out. There were some reorgs. The only thing that was kind of new was the FAS 123R (stock option expense accounting) and purchase price accounting and amortization of goodwill and all the rest of it. That kind of threw monkey wrenches into the numbers.
Now it's just a question of a few minor tweaks to the strategies, some strong execution and some creativity that I think Jonathan brings around getting developers to enlist, and to convert the huge communities that we've built into a recurring revenue subscription model.
Q: So, Jonathan, only minor tweaks to the strategy. Are we going to see the "same song, second verse" in the Schwartz era?
Schwartz: My view on the market opportunity we're sitting in front of us is pretty simple. It's the network is the computer.
It's been true for the past 20 years; it's going to be even more true for the next 20 years. I'm not worried about demand; I'm worried about making sure that Sun intercepts that demand. It's going to happen in some pretty unconventional ways--whether it's with free software downloads or free try-and-buy servers coming off the Web.
We're in a somewhat unique industry, in the sense that demands for network computing are not going to go down, for as long as we are on the planet. None of us are going to be smaller consumers of network innovations or network services next year. We're all going to be larger consumers. Not even the oil industry can count on that demand profile, because they're going to worry about fuel cells and ethanol and a bunch of alternatives. I'm not worried about the alternative Internet emerging and our being placed out of it.
So, same strategy, second verse? Obviously the strategy today versus 10 years ago may have had the same theme--the network is the computer--but the road map is a pretty different beast.
Q: Scott, you don't strike me as person who necessarily wants to be surrounded by yes-men--perhaps somebody who wants to be challenged when talking to your executives. Can you guys give me some examples of where you've actually disagreed over a strategy or tactics?
Schwartz: I think I wanted to invite an environmental activist to one of our product launches, and Scott really put his foot down. Other than that, I can't think of a single instance...
McNealy: You won, though.
Schwartz: I did win that one.
Q: So you guys haven't had any significant disagreements that you can remember? I thought there was this dynamic of constantly challenging each other.
McNealy: With previous senior execs, I've had enormous amounts of disagreement and argument, and it creates a very dysfunctional (environment). With Jonathan, it's funny, I'll write one code word to him, and it is like writing five paragraphs with somebody else. We are clearly not "separated at birth"; but you know, it is very, very comfortable. Jonathan is one of the few guys that can have a nonemotional argument about an issue. There's no ego issue around, "I am smarter than you."
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