McNealy Out as Sun CEO, Schwartz In

Updated: After a 22-year reign, co-founder and CEO Scott McNealy says he will step down from the company's top spot. He will remain as chairman, however.

Scott McNealy, one of Sun Microsystems co-founders and CEO for 22 years, is stepping down from the companys top position, being replaced by current President and Chief Operating Officer Jonathan Schwartz.

McNealy made the announcement April 24 at the end of the Santa Clara, Calif., companys quarterly earnings call.

He said that Sun, which grew rapidly during the 1990s but has struggled over the past five-plus years during the economic downturn, appeared to be moving in the right direction again, and that now was the time to make the change.

"The time is right," McNealy said. "Our product line is fixed … our customers are probably happier with us than they have been in years."

/zimages/6/28571.gifPresident and COO Jonathan Schwartz speaks on his agenda for Sun. Click here to read more.

McNealy will remain chairman of the board of directors, and will focus on expanding Suns presence around the world, concentrating on such areas as the companys open-source initiatives.

McNealy also will take the role of chairman of McLean, Va., technology company Sun Federal, which works only with the U.S. government.

In addition to becoming CEO, Schwartz will also keep the title of president.

McNealy credited Schwartz, who came to Sun in 1996, with driving the turnaround at Sun, which for years stuck stubbornly with its legacy SPARC/Solaris platform even as industry demand shifted to the x86 architecture powered by Intel processors and running Windows, and in the face of the rise of the Linux operating system.

Over the past few years, Sun has embraced the open-source movement, kicking off initiatives to open-source such Sun technologies as Solaris and the new UltraSPARC T1 chip, formerly code-named Niagara, which launched in fall of 2005.

/zimages/6/28571.gifRumors of McNealys departure were rife before the announcement. What were some of the factors behind the decision? Click here to read more.

At the same time, the company has undertaken a drastic revamping of its server product line, adopting Advanced Micro Devices 64-bit Opteron processor as the tool with which to push its way into the competitive x86 market. During the earnings call, Schwartz said the company was experiencing "outstanding" growth in its Opteron-based Galaxy systems, with an annual run rate of about $400 million.

Schwartz also said he expects that number to continue to grow. "Our biggest challenge is that many of our customers still dont know that we have x64 servers," he said.

Along with the Galaxy systems, Sun also is pushing in new directions with its RISC-based servers. The company two years ago announced it was partnering with Fujitsu to continue developing a traditional SPARC line of servers while freeing up R&D funds to enable Sun to pursue other projects. The servers, powered by Fujitsus upcoming dual-core SPARC64 "Olympus" chip and dubbed the Advanced Product Line, will start rolling out later in 2006.

Suns UltraSPARC T1 chip features up to eight cores, each of which can run up to four instruction threads simultaneously. In addition, Sun in April of 2006 taped out the next-generation chip, the T2, which is due to appear in servers next year. Sun also is working on another RISC chip, code-named Rock, scheduled for release in 2008.

In response to an analysts question, Schwartz said Sun going forward will be more growth-oriented, looking for new customers and new opportunities. During the past four years or so, Sun was more focused on stabilizing the company and improving the product line and winning back traditional customers—as evidenced by its highly public courting of Wall Street companies, longtime users of Sun products that had begun to migrate over to x86 platforms running Windows.

McNealy and Schwartz "have been in lockstep on a number of issues … in the last four to five years in particular," Schwartz said. Now that the work of stabilizing the company is done, Sun needs to push for growth, he said.

Suns leadership change mirrors changes at other large technology companies. Bill Gates stepped aside at Microsoft, giving the CEO reins over to Steve Ballmer, while Michael Dell left the CEO post at his namesake company in 2004, remaining as chairman while giving control over to longtime second-in-command Kevin Rollins. Rollins handles the day-to-day operations for the computer maker, while Dell focuses more on strategy, though both still work closely with one another.

Editors Note: This story was updated to include additional background and quotes from Schwartz.

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