Sun's New CEO Faces Tough Challenges

Jonathan Schwartz needs to make some changes to restore the computer company to profitability.
Selling Services
But after winning major contracts in financial, telecom, and government markets with its high-performance, high-priced products in the '80s and '90s, Sun got caught from behind when businesses moved to low-cost computers running Windows and Linux on commodity processors from Intel and Advanced Micro Devices. "They keep missing the higher-value part of the industry--software and services," says Joshua Greenbaum, a principal at Enterprise Applications Consulting.

Sun is making progress. In November, Virtual Compute, which runs high-performance computing jobs for customers in the oil industry, bought 1 million hours of Sun CPU time, which Sun sells for $1 per CPU hour. Sun's service fills short-term needs, CEO Ed Hayes says, but he doesn't plan to buy any more hardware from Sun or its major competitors. "It's too expensive," he says. "Computing is a commodity and getting cheaper and cheaper. I don't think people are interested in brand names."

Still, Sun has $4.4 billion in cash, and big Web services companies like Yahoo are buying Sun gear again. A priority for Schwartz is to figure out how to finally make some money from Java, perhaps by entering consumer markets where the software resides on millions of cell phones. Schwartz even suggested Sun will buy open source software companies to add middleware and perhaps a version of Linux to its software portfolio.

Schwartz has been on the fast track since joining Sun 10 years ago when it acquired his startup, and McNealy has been grooming him as his successor for at least the past two. Schwartz is equally facile with technology, operations, and finance, and he's known for his intelligence and smooth--even slick--public demeanor. And true to form as McNealy's protégé, he's shown he won't be a dry, by-the-book CEO in the mold of HP's Mark Hurd, called in last year to turn that troubled company around.

But it will take more than a quip or a slick ad campaign to turn around Sun's fortunes. The company always has been a technology leader and, until the tech bubble burst, was able to get top-shelf prices for its products. It can't anymore. Where to position Sun in an industry where few business customers are still willing to pay premium prices may be Schwartz's toughest challenge.

-- with Darrell Dunn