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4/24/2006
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McNealy Steps Down As Sun CEO; Schwartz Steps Up

The changing of the guard comes as Sun reports widening losses, but McNealy says the company is poised for a comeback.

After over seeing the rise and fall of Sun Microsystems' fortunes for 22 years, Scott McNealy announced Monday that he will step aside as chief executive, turning the responsibility for completing a resurgence of the company over to long-term collaborator Jonathan Schwartz.

McNealy will remain as chairman.

While Sun has struggling financially through much of the past decade, McNealy said during a teleconference that he believes the company has stabilized with consistent revenue growth, and is back on track to regain profitability, providing the right timing to make the leadership change.

"I've had 22 years running this joint and having a good time with it, and I'd love to go do that more, but we've got a great guy here (in Schwartz) who I've been working to get into this role for quite a while," McNealy said. "He's done an awesome job in everything he's done (at Sun).... He and I can finish each other's sentences."

McNealy founded Sun along with Andy Bechtolsheim, Bill Joy, and Vinod Khosla in 1982. As chairman, McNealy said he will concentrate on a role as a liaison between Sun and world leaders as well as key customer relationships.

Schwartz joined Sun in 1996 as part of Sun's acquisition of Lighthouse Design, where he was chief executive. He was named Sun's president and chief operating officer in 2004.

Schwartz on Monday gave McNealy credit for creating a company that "has populated the world with CEOs. Sun has been a leadership factory in the technology industry … There are two reason why people come to work, other than a paycheck, and that is you love your job or you love your boss, and I've been in the rare position to have had both."

During the next 90 days Schwartz he and the Sun leadership team will concentrate on comprehensive review of all growth opportunities for the company, "down the individual product level and align this organization for growth." He said he will also be reviewing all marketing and corporate resources.

The announcement came the same day as Sun reported its fiscal third quarter financial results. Revenues for the third quarter were increased 21% from a year ago to $3.18 billion, but the company posted a net loss of $217 million, as compared with a net loss of $28 million during the same period a year ago.

The loss was attributed to $87 million in asset amortization associated with recent acquisitions, $57 million of stock-based compensation charges, and $36 million in restructuring charges. Despite the loss, cash generated in the quarter was $197 million, providing the company with total cash balance of $4.4 billion.

"I believe the company I am handing off, unlike what some of the one-time charges might indicate, is actually a fairly strong company," McNealy said. "I think the timing is perfect (to make the change.) I wasn't going to hand it over when the (company) was deteriorating post-bubble, and it was going too fast to hand off during the bubble."

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