Mcnealys New Priorities

Return to profitability and open-source success are the top challenges on list.

As Sun Microsystems Inc. grapples with the loss of several senior executives, including President and Chief Operating Officer Ed Zander last week, the company must devise a business plan that returns profits and satisfies customers.

Disgruntled customers and partners last week said they hope Zanders departure, scheduled for July, and that of other executives will enable Sun to shift from its rigid focus on high-end hardware toward the more heterogeneous solution of SPARC- and X86-based commodity hardware.

Sun has been criticized for focusing on high-end hardware, even as the dot-com bubble burst and the economy slowed.

The Palo Alto, Calif., company has begun trying to change that perception by moving toward lower-end solutions. But that has brought new challenges, such as the fallout from its recent decision to charge for the upcoming Sun-branded StarOffice 6.0 desktop productivity suite.

Though the open-source StarOffice has been a standard bundle in major Linux distributions, that may change. Red Hat Inc., of Raleigh, N.C., will no longer include StarOffice 6.0 or any other new versions, officials said last week.

Suns business plan based on Linux and open source was "schizophrenic at best," said Red Hat spokeswoman Melissa London. "It appears that they just dont know what theyre doing, and so theyre hurting."

According to London, Red Hat will continue to ship StarOffice 5.2 with its Linux distribution until the company finds a comparable open-source solution. Officials said they will evaluate the suite.

Another leading Linux provider, SuSE Linux AG, is also grappling with the pricing structure. Holger Dyroff, who heads SuSEs operations in the United States from Oakland, Calif., said the company was committed to shipping StarOffice 6.0 for now and has made no decision going forward.

In addition, Suns decision earlier this year that it will embrace Linux, but only for low-end Intel Corp.-based servers, has been largely dismissed by customers as unrealistic.

"Theres nothing there that I cant get from any vendor supplying a Linux distribution," said Alan DuBoff, CEO of Software Orchestration Inc., in San Jose, Calif. "I would rather see Sun provide Solaris running on that low-end commodity hardware, since they have a great product in the form of Solaris X86."

Other customers also welcomed Zanders departure. Al Hopper, an engineering consultant at Logical Approach Inc., in Plano, Texas, a Sun shop, said Suns constant emphasis on big accounts and large enterprise system sales with high profit margins had alienated it from most of its customer base.

Another user, Joe Furmanski, manager of systems and planning at UPMC Health System, in Pittsburgh, which owns two Sun E10000 servers, said he is disconcerted by Suns less-than- stellar financials and now by the departure of key executives. "I think this is an opportunity for other vendors," Furmanski said. "I think its going to create some instability in their company."

Financial analysts have painted a fairly bleak short-term picture. Richard Chu, an analyst at S.G. Cowen Securities Corp., in Boston, said Sun is facing intense competition. "Whether [its] from IBM or Microsoft [Corp.] at one level or [Hewlett-Packard Co.-Compaq Computer Corp.] and Dell [Computer Corp.] at the low end of the market, where were beginning to see some signs of commoditization, I expect well see more changes," Chu said.

Andy Neff, an analyst at Bear Stearns & Co. Inc. in New York, last week downgraded his recommendation for the company, saying he was unsure what was going on inside Sun. "Senior executives are leaving. ... What you would like to see are people who are committed [to helping the company turn around], making that happen," he said.

Customers such as Hopper say Suns best bet would be to grow from its current strengths. "Wed like to see Sun come out with a range of competitively priced Solaris servers which are based on commodity hardware and Solaris X86. Sun could also use this as a turnkey platform to compete in the upcoming Web services segment," he said.

Software Orchestrations DuBoff said it will be interesting to see how it all ends up after the dust settles. "If I am to recommend Linux solutions from Sun to my clients, there will need to be some good reason for that. I would rather see Sun provide Solaris running on that low-end commodity hardware," he said.

Additional reporting by Ken Popovich