Sun Needs Layoffs, Cost-Cutting: Channel Partners

All “Sun-setting-on-McNealy” jokes aside, Sun Microsystems partners took Scott McNealy’s move to step aside as CEO in stride.

But they remain concerned, in the wake of comments last week by new CEO Jonathan Schwartz, that the company is not going to get back to fighting trim.

On a conference call last Monday, Schwartz said Sun will aggressively seek opportunities with the best upside, including open-source Solaris. He did not commit to substantial cost-cutting. Sun employs 38,000 people and reported a $217 million loss for its third fiscal quarter ended March 31, including $144 million in acquisition and stock compensation charges.

“This is about how to grow. It is not about how to take a whack in head count,” Schwartz said of his plan.

Partners said Sun has to do both.

“They need to run their business the way we run ours,” said one longtime Sun solution provider, who requested anonymity. “Cash-flow positive is not acceptable—it has to be profitable. I have no lack of confidence in Sun’s viability, but they have to keep their brand viability and they have to get costs down.”

This partner and others cited the return in February of Mike Lehman as Sun CFO as a positive sign the company plans to do what it takes. But several said they had expected Lehman to get the top job and thus have the power to enact tough changes. Before Lehman left, he had agitated for more cost cuts.

Greg Stroud, Sun’s vice president of U.S. partner and alliance sales, last week attended a meeting of several hundred Sun vice presidents where the hot topic was the leadership change which, he said, will not impact the channel. “We’re all about the channel,” Stroud said.

But partners are waiting for Schwartz to acknowledge their role in Sun’s ecosystem. The lack of coordination between Sun and its partners hurts customer satisfaction, they say.

“This try-and-buy thing is neat, but it’s not channel-ready,” said one partner, referring to a program under which prospects can evaluate and test Sun technology at no charge. “My customers are buying Niagaras from Sun’s site, and I don’t know about them. That means there are prospects out there, and no one’s calling them. A channel partner could help turn this into a real solution sale.”

Niagara is Sun’s T2000 eight-core server that sells for about $15,000.

Partners agree Schwartz has his work cut out.

“With the acquisition of StorageTek, there are lots of different deliverables in various silos. He has to make sure they both stand on their own and can be cross-sold as a complete solution,” said John Varel, CEO of Fusionstorm, a large San Francisco-based Oracle partner.

Douglas Nassaur, president of TrueNorth Technology, a Sun software partner in Alpharetta, Ga., said Schwartz could bring sharper software focus to the company.

“Schwartz knows it is not about hardware. It’s not about software anymore. It’s about software services, and that is where Schwartz is going to take this,” Nassaur said.

Indeed, some Sun watchers say McNealy’s delay in positioning Sun as a software as well as hardware company hurt. During the boom, McNealy often quipped that Sun’s business was safe since “no one can download a SPARCstation.”

For the past few years, however, few would agree that Sun’s business was safe. Its stock price languished at less than $5 per share as Dell and other hardware vendors undercut Sun server prices with low-cost commodity servers. Even longtime Sun ally Oracle CEO Larry Ellison started singing the praises of cheap blade servers as the best TCO platform for Oracle’s pricey databases. Sun was late with Linux and, adding insult to injury, longtime nemesis IBM stole Sun’s thunder in Java development.

“Jonathan has to take time to get to know the channel and the many ways it adds value, adds to Sun’s revenue and reach in the marketplace,” said Rob Wolfe, president of AvcomEast, a Sun partner in Vienna, Va. “I hope the Sun executive team becomes more aware and involved with the partner council and the entire partner community.”

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