May 1, 2002 2:10 PM PDT

Zander-free Sun could ruffle customers

The impending retirement of Sun Microsystems Chief Operating Officer Ed Zander concentrates the power of flamboyant Chief Executive Scott McNealy just as the company is trying to appeal to more conservative customers.

Zander's July 1 departure, announced Wednesday, underscores what will likely become a substantial personality change for the server company. Sun has long been known for radical computing ideas that appealed to aggressive customers in the telecommunications, financial services and Internet industries. In this environment, Zander was instrumental in ensuring that Sun's trains ran on time. He also kicked off an effort to reach out to more temperate customers, such as defense contractors, retailers and manufacturing companies.

In contrast, McNealy has been more inclined to concentrate on grand concepts than on the day-to-day details. Other high-level Sun executives have also recently announced their retirement, which will inevitably lead to organizational turmoil.

McNealy dismissed concerns that these new, moderate customers will be put off by the change in management. "Eddie is crazier than me," he said in a conference call Wednesday.

But Sun could be lopsided after Zander leaves, Merrill Lynch financial analyst Steve Milunovich said in a report Wednesday. "Zander is terrific with customers, often playing yin to McNealy's yang. Zander is more practical and less visionary. Sun needs both right now," Milunovich said.

In any case, McNealy will have to shoulder more work, and some are concerned, given that the CEO has no plans at the moment to hire a replacement and three other top managers are bowing out by the end of Sun's fiscal year. McNealy will assume Zander's title of president.


Gartner analysts Jim Cassell, Andrew Butler and Yefim Natis say Zander's resignation underscores the company's arrival at a turning point.

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"While we agree that Sun does have deep management talent, the concentration of high-level management departure after a tough two-year period is a reason for concern," Morgan Stanley financial analyst Rebecca Runkle said in a report Wednesday. Robertson Stephens analyst Eric Rothdeutsch agreed. "The exodus of the senior management team creates an experience vacuum that needs to be filled quickly," she said Wednesday.

Sun, with a return to profitability expected this quarter, is in a better position now to deal with the turnover than it has been. The company is largely done with its transition to newer UltraSparc III processors, simplifying micromanagement-intensive manufacturing, inventory and sales issues.

Ed Zander But it's not out of the woods yet. The process of steering the sales force to new customers is still relatively young; resurgent IBM has taken market position and initiative from Sun; and Big Blue has allied with Microsoft in the Web services movement to revamp how business is done on the Internet.

Scott McNealy Investors took the skeptical view Wednesday, sending Sun's stock down $1.21, or 15 percent, to $6.97.

Zander, 55, a brash Brooklyn, N.Y., native, joined Sun in 1987 after working at now-defunct server sellers Data General and Apollo computer. At Sun, he ran, at different times, the marketing group, the software group, and the computer group. Since his promotion to COO in July 1998, he has handled the day-to-day duties of running Sun, meeting with customers and making sure the company's divisions make their numbers. His success at Sun has often placed him on the short list of candidates companies call when CEO positions open up.

Sun co-founder McNealy, on the other hand, dwells on a more ethereal plane, issuing opinions often contrary to prevailing wisdom, deriding top rivals Microsoft and IBM, and trying to steer the computing industry in the same direction Sun is headed.

In some ways, Zander's departure resembles the departure of Oracle COO Ray Lane, leaving the database company more in the hands of shoot-from-the-hip CEO Larry Ellison. But unlike Lane and Ellison, Zander and McNealy get along well.

Ed from A to Zander

1947 Born in Brooklyn, N.Y., where he spent much of his boyhood.

1968 Received B.S. in electrical engineering, Rensselaer Polytechnic Institute.

1975 Received M.B.A., Boston University.

1975 Took engineering job at Data General, then moved to marketing position.

1982 Became director of marketing at Apollo Computer; promoted to vice president of marketing.

1987 Became vice president of corporate marketing at Sun Microsystems, eventually taking over Sun's software and computer divisions.

1991 Became president of the SunSoft software group, overseeing the transition from SunOS to the Solaris operating system based on AT&T's Unix.

1995 Became president of the server and workstation group at the heart of Sun's business, launching the E10000 Starfire server acquired from Cray.

1998 Promoted to chief operating officer, reducing the independence of Sun's divisions.

1999 Given additional title of president.

2002 Announces intention to resign from Sun on July 1, agreeing to help with the transition through the end of 2002.

McNealy said today it won't be a problem having more people report directly to him. In the longer term, though, he might well decide to replace Zander. "You wonder whether he'd want to hire someone else eventually," A.G. Edwards financial analyst Shebly Seyrafi said.

But McNealy says it would be hard to find someone to fill Zander's shoes.

"It takes a rare partnership...a couple of very compatible characters to be able to pull off that kind of relationship," McNealy said. "We worked 10 years together before we developed that kind of trust."

More to depart?
At this point, it's easier to find change than stability in Sun's Santa Clara, Calif.-based executive suite.

McNealy declined to say whether more changes were in the works, but he said top-level changes could take place.

But there are some top executives who are staying put or at least haven't announced their intention to retire yet: Mark Canepa, executive vice president of the Network Storage Products Group; Masood Jabbar, executive vice president of global sales operations; Greg Papadapoulos, senior vice president and chief technology officer; Crawford Beveridge, executive vice president and chief human resources officer; Mike Morris, senior vice president and general counsel; and John Loiacono, senior vice president and chief marketing officer.

The three top-level retirements from Sun are Chief Financial Officer Mike Lehman, 51, who will be replaced by Steve McGowan, 53; Larry Hambly, 55, the head of services, who will be replaced by Patricia Sueltz, 49; and John Shoemaker, 59, head of the computer systems groups, who won't be replaced.

The departure of Shoemaker and now Zander means Sun's three server and microprocessor executives will now report directly to McNealy instead of being separated by two layers of management. Those three executives are Clark Masters, in charge of Sun's high-end and midrange "V1" servers; Neil Knox, head of the lower-end and blade "H1" systems that ship in larger quantities; and David Yen, head of the microprocessor work.

Sun has also created two new divisions, a unified software group and a new consolidated marketing group.

Jonathan Schwartz, 36, will replace Sueltz as head of Sun's software unit while taking on the additional responsibility of the company's Sun Open Network Environment (Sun ONE) suite of e-commerce programs. And Mark Tolliver, 50, formerly in charge of the Sun ONE products, will lead the new marketing group.

What's next for Zander?
Zander insists he doesn't know what he'll be doing next after he retires, besides helping Sun adjust to his departure through the end of the 2002.


Sun CEO Ed Zander has helped head up many company initiatives and products. View the clips below by clicking on the links.
Click here to Play
 
Sun challenges IBM with new server
Ed Zander, COO, Sun Microsystems
September 25, 2001
Click here to Play
 
Sun takes on Microsoft.Net
Scott McNealy, CEO, Sun, and Ed Zander, COO, Sun
October 23, 2001
Click here to Play
 
Sun: Open source leads to innovation
Ed Zander, COO, Sun Microsystems
June 4, 2001
Click here to Play
 
Sun COO: "The PC era is over"
Ed Zander, COO, Sun Microsystems
February 2, 2001


"Once I finish all that, I'll think about life thereafter. There's nothing in my foreseeable future that I have planned right now," Zander said.

But don't expect a life of golf for Zander. "He probably wants to move on to greener pastures. He's 55 years old and he has a lot of energy," Seyrafi said. "My feeling is he wants to be the CEO of a company."

Zander, a candidate when Compaq Computer and Hewlett-Packard were searching for new executives, has some bright points on his resume. He led the transition to Solaris, a replacement for SunOS and now the most widely used version of Unix. And he oversaw the arrival of the E10000 Starfire server, a 64-processor behemoth Sun acquired from Cray that gave real clout to Sun's battle to consign IBM's mainframe to obscurity.

And many give Zander credit for keeping Sun from collapsing when the Internet business craze ended and the recession began, though the most painful part of Zander's tenure at Sun was cutting 3,900 jobs, in 2001.

"Certainly doing the reduction in force, because it affects people's personal lives, was very difficult for us," Zander said. The company now is cutting about 1,000 more positions, though many of those cuts will come through attrition and not layoffs.

Zander has maintained a cheerful demeanor through it all. "Growing 60 percent (during the Internet mania) was fun, but getting the company back on track like this year was also fun," Zander said. "I've enjoyed all 15 years."

 

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