Schwartz replaces McNealy as Sun Microsystems’ CEO

The man who once claimed his company “put the dot in dot-com” has stepped down as the CEO of the organization he ran for nearly a quarter century.

Sun Microsystems Inc. co-founder Scott McNealy said the timing was right to install Jonathan Schwartz as CEO.

The Mountain View, Calif.-based company reported a solid growth quarter and it gives Schwartz a chance to plan the next fiscal year, McNealy said in a teleconference.

But at least one analyst thinks the company has been in trouble for years and this change in leadership may not be in the right direction.

“It’s been in trouble for most of the decade, and the reason it’s in trouble is its market has gone away,” said Rob Enderle, principal analyst with the Enderle Group in San Jose, Calif.

The large-scale premium server market has been commoditized, he said. Sun is not structured to sustain that market, Enderle said.

“Sun will never be a Dell.”

Sun is in the same position Apple was a few years ago. Apple saved itself by reinventing itself and getting into the MP3 player market, Enderle said. “Sun needs to find its iPod.”

But Enderle wonders if Schwartz is the right man for the job, as he hasn’t shown himself to be the kind of leader who comes in and makes radical changes in order to turn around a corporation.

Although Sun has been cash-flow-positive, the company has shown a quarter-over-quarter loss. In the last quarter, which ended on March 26, Sun’s revenue grew 21 per cent year over year. Sun also posted a loss of US$217 million for that quarter.

It’s critical that over the next fiscal year, Sun become not just cash-flow-positive but post real profits, said David Senf, program manager for IDC Canada in Toronto.

Changes made
The company has invested heavily in changing its product lineup and changing its business model to a degree, he said. It acquired StorageTek to beef up its storage offering and made almost all of its software suites open source.

“So these are big changes for Sun Microsystems,” he said. “It was time for McNealy to depart. The financial community had been holding his feet to the fire over the last number of quarters.” McNealy will remain at Sun as a chairman.

Sun’s main businesses – storage, server and software – have been extremely competitive in both the low and high end from Dell, IBM and EMC.

“Sun needs to be able to reconfigure its product line to an extent in order to be able to take on Dell and take on EMC,” Senf said. “Sun adopted its Linux strategy – it’s x86 strategy – late. And it’s paid the price for that.”

Sun is very much an organization in transition, said Stephen O’Grady, senior analyst with Red Monk in Denver.

Sun has made some bold and aggressive moves over the last couple of years, such as making Solaris open source, and Schwartz has either been behind those ideas or championed them, he said.

The move can be seen as a symbolic shift towards software, as Schwartz comes from the software side of the business, said Warren Shiau, a lead analyst at the Strategic Counsel.

He said financial analysts have been unfair to McNealy and overly critical of the fact that he has been a strong advocate of research.

“There have been many people, especially investment bankers and financial analysts who say Sun shouldn’t be doing this,” he said.
– With files from Paolo Del Nibletto

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