Sun Gets CEO Playbook Late, Really Late

By Larry Dignan  |  Posted 2006-04-24 Email Print this article Print

Opinion: Sun Microsystems gets a new CEO and chatty Scott McNealy steps aside; the move comes way too late, though.

Sun Microsystems finally got the memo on what kind of CEOs succeed in todays technology market. Unfortunately, it came 1,393 days, or 3 years, 9 months, too late. Sun has announced that chatty CEO Scott McNealy would hand the reins to Jonathan Schwartz, who steps up to the plate to be chief executive. McNealy will continue to hang around as chairman to "focus his efforts on Suns government and academic relationships globally, as well as expand his role with key strategic partner relationships."
The move is likely to be applauded by Wall Street, which was becoming weary of McNealy and his inability to do a drastic restructuring that would make Sun consistently profitable.
The latest move by Sun has been overdue since July 1, 2002—the day Ed Zander left the company. The best person to run Sun is now doing a great job at Motorola. When Zander was about to split, McNealy should have stepped aside. At Microsoft, Bill Gates did it for Steve Ballmer. McNealy, however, didnt get the memo. The bottom line is todays successful CEOs look a lot like Hewlett-Packard CEO Mark Hurd. They stay quiet, focus on operations and the customer, get the job done and let the numbers do the talking. But Sun didnt make a move, even as industry leaders such as General Electric and Citigroup replaced flashy chief executives with the strong, relatively silent types.
In the end, McNealy was clearly too 1999 to deliver for todays technology company. The numbers tell the tale. McNealy had to leave just to get Suns stock price above the $5.01 closing price on Zanders last day. In after-hours trading following the announcement, Sun was comfortably above the $5 mark at $5.37. As recently as the summer of 2005, Sun shares meandered in the $3 range. Sun apologists—those folks who love technology more than running a business—may call that comparison unfair, but consider that Sun shares used to be in the $70 range during the dot-com boom. Total revenue for the year ending June 30, 2005, was $11.07 billion, down from $11.43 billion for the year ending June 30, 2003. In fiscal 2001, Sun had revenue of $18.25 billion. Click here to read more about new Sun CEO Jonathan Schwartz and his previously expressed agenda for the company. Suns net income is also an ugly picture, and the company hasnt posted an annual profit since 2001. In 2001, Sun posted a profit of $927 million. In 2003, it lost $3.4 billion. In 2004, it dropped $388 million. In 2005, it only lost $107 million. Can you blame investors for having McNealy fatigue? On the technology front, Sun is under assault from Linux, cheap Intel- and AMD-powered servers and price-conscious customers. Now the big question is whether Schwartz is up to the job. Will Schwartz be able to make the hard choices McNealy couldnt to please Wall Street? Will McNealy, who isnt likely to be a quiet chairman, let Schwartz make them? Is Schwartz long on technology skills but short on operating savvy? The jury is still out and Schwartz will get his honeymoon, but you have to wonder what Sun would have looked like with Zander running the show. Check out eWEEK.coms for the latest open-source news, reviews and analysis.
Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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