Sun Needs Layoffs, Cost-Cutting: Channel Partners

Just increasing revenue won't be enough for incoming CEO Jonathan Schwartz to return the company to profitability, Channel Partners says.
Even McNealy boosters said it was time for change at the top. McNealy, one of Sun’s four co-founders, remains chairman but relinquishes the top operations job after 22 years.

“From my personal perspective, Scott’s been looking tired,” said Dave Condensa, CEO of Helio Solutions, Santa Clara, Calif.

McNealy’s incessant trash-talking, his infamous top 10 lists and his “Windows is a hairball” comments were entertaining during the salad days of the PC industry, but his antics started to grate as Sun’s travails continued over the past few years, partners and analysts said.

“When things are good, having a CEO with a larger-than-life persona is a good thing. When things are going badly, you’ve got somebody in the CEO chair with a very large target on his chest,” said Charles King, principal analyst at Pund-IT, Hayward, Calif.

Jeff Matthews, general partner at Ram Partners, a Greenwich, Conn., hedge fund, said Wall Street’s feelings were clear: “The stock rallied 10 percent on the news he was leaving. What does that tell you?”

But Matthews, who holds no position in Sun, cautioned that “we need to see what the new guy actually does before we get too excited. So far the mainstream press has focused on his ponytail, which is not necessarily very exciting business-wise.”

The 40-year-old Schwartz—who is, in fact, ponytailed—is viewed as vital and very articulate. He puts even pointed comments in a more positive light. “He says some tough things, but he says them in a thoughtful way,” said one solution provider.

After a mere decade at Sun, Schwartz lacks much of McNealy’s baggage. Some say he will preside over cuts, his comments notwithstanding. “Everyone has been calling for Sun to consolidate Sun and StorageTek personnel, and looking at other costs. Scott just doesn’t have the stomach for it,” Condensa said.

Tom Kuni, president of SSI hubcity, a Sun partner in Metuchen, N.J., concurs: “McNealy is being put out of the way because he does not want blood on his hands from personnel cuts.”

Kuni hopes money saved will flow to marketing, where he says Sun has traditionally been weak. “A lot of people wonder why Sun spends so much on R&D and yet gives the stuff away. Maybe it’s good as a long-term strategy, but they can’t do it forever,” he said. “I’ll bet Scott regrets not making some of those cuts earlier. [Hewlett-Packard] has shown that taking the appropriate measures can bring a company back to profitability,” Kuni said.

McNealy’s status change had been rumored so long that Amy Rao, CEO of Integrated Archive Solutions, a Palo Alto, Calif.-based partner, said this news is no surprise. “Hopefully, customers will think it’s good for Sun,” she said.

In the near term, Schwartz said the Santa Clara, Calif.-based vendor will review all growth opportunities. Along with Greg Papadopoulos, now executive vice president of R&D, Schwartz will oversee Sun’s nearly $2 billion R&D budget. Anil Gadre, Sun’s chief marketing officer, and Don Grantham, Sun’s executive vice president of global sales and service, will examine the company’s marketing, sales, services, systems engineering and operations both at headquarters and in the field to make sure they target the biggest opportunities, Schwartz said.

STEVEN BURKE & STACY COWLEY contributed to this story.