CEO Full Count
CEO Full Count: Sun Microsystems' Scott G. McNealy
Daniel Lyons, 11.01.02, 12:00 PM ET
Ball One
In 1999, as the Internet frenzy is peaking, nobody is exploiting the madness better than Santa Clara, Calif.-based Sun Microsystems (nasdaq: SUNW - news - people ), whose pricey Unix-based servers "put the dot in dot-com." Sun's computers become the de facto standard for running Web sites. Chief Executive Scott G. McNealy wisely recognizes that telcos and Web hosts will become huge computer buyers and dominates those markets. McNealy pitches vision of computing as a utility, coins phrase: "Big freaking Web tone switch." Sales in fiscal 2000 (June 30) grow 33% to $15.7 billion.
Ball Two
McNealy, who in 1997 posed on a magazine cover as "Java Man," in tights and superhero cape, becomes obsessed with Microsoft (nasdaq: MSFT - news - people ). He leads an anti-Bill Gates crusade and helps the government build an antitrust case against the company. Separately, Sun sues Microsoft over what it says is a violation of Sun's Java licensing agreement. Meanwhile, McNealy builds his own software arsenal. Java programming language, which is supposedly operating-system agnostic, threatens Microsoft's Windows monopoly and creates Web-savvy aura for Sun. Jini software will let devices like cell phones and personal digital assistants connect to a network. The Sun-Netscape alliance brings Web server software. McNealy buys StarOffice, a software firm that makes a suite of productivity software, which Sun will give away for free. Recognizing the Linux threat, in 2000 McNealy buys Cobalt, maker of low-end Linux-based servers. In fiscal 2001, sales grow 16% to $18.2 billion.
Strike One
As dot-coms start crashing, McNealy insists the downturn will be a good thing for Sun, because a tight economy will make customers more cost-conscious and drive them to favor Sun's machines over rivals. Er...right. In May, McNealy, an ace golfer, is quoted that he has just spent the weekend on the links instead of working, because, he laughs, "nobody is buying anything." A month later, in June 2001, Sun posts its first quarterly loss in 12 years. In October 2001, McNealy announces a 9% staff reduction, but it's too little too late. In fiscal 2002 (June 30), sales drop 32% to $12.5 billion from $18.2 billion, and Sun posts a net loss of $255 million. One bright spot: Like many technology firms, Sun hoarded cash during the bubble years and still has nearly $3 billion in the bank.
Ball Three
In 2001, hockey player McNealy hip-checks Microsoft and wins $20 million settlement in squabble over Java. With an overdose of hype, McNealy rolls out the Sun ONE initiative, a grand and mostly imaginary scheme for delivering Web services (like information from disconnected applications) that will compete with Microsoft's equally imaginary .NET initiative.
Strike Two
In July 2002, Sun's president, Edward Zander, resigns along with Sun's chief financial officer and two other top execs. No worries: McNealy says he'll do Zander's job. Meanwhile, cheaper Intel (nasdaq: INTC - news - people )-based servers from Dell Computer (nasdaq: DELL - news - people ), Hewlett-Packard (nyse: HPQ - news - people ) and IBM (nyse: IBM - news - people ) are eating Sun alive. Sun's hodgepodge software lineup is hurting. Java generates "tens of millions" in license revenue, Sun claims, though that's still far less than Microsoft makes selling its developer tools. Jini is a flop. StarOffice is so bad that nobody wants it, even for free. A mere 100,000 units have been ordered, which won't put much of a dent in the 78 million copies of Office XP that Microsoft has shipped. Sun ONE provides setup for a mean joke: "Sun ONE? I thought that referred to their stock price."
Next Pitch
Shares trade at $2.60. Some analysts use the "v word," as in "viability." Sun is the last vertically integrated computer company, making its own chips, circuit boards and software. That was a great business model--in the 1970s. McNealy's stubborn commitment to this way of doing things now puts Sun behind almost everyone in terms of price and performance. Worse yet, Sun has been forced to cut R&D spending--it dropped 9% in fiscal 2002--making it even harder to keep up. Meanwhile Sun resorts to hunting for growth by selling professional services, storage devices, Linux boxes and even Intel-based servers. It's typical McNealy seat-of-the-pants stuff: We're doing this! Now that! Now this! And that! What once gave Sun an edge--Sparc chips and Solaris software--now seriously threaten to marginalize the company, as commodity hardware and standards-based software take hold. Will Sun change its business model? Doesn't seem likely, given McNealy's over-my-dead-body attitude. McNealy has toned down the anti-Gates rhetoric, but still pursues a lawsuit against Microsoft. Retrenching in October 2002, Sun announces it will lay off another 4,400 people, 11% of its workforce. McNealy, a co-founder, won't be among those let go. But if you're looking for someone to blame, he's a good place to start.
Sun Says
"Scott McNealy is outspoken, he is a visionary, and he has made shrewd business decisions for the past 20 years. No technology executive foresaw the depth of the technology recession. And rest assured, McNealy has never abandoned Sun or its customers in order to squeeze an extra round of golf in."
News 
Market Data 
Discover 
