Monday, July 19, 2004

BW Online | Sun: A CEO's Last Stand

BW Online | Sun: A CEO's Last Stand "Talk with ever-voluble Sun Microsystems Inc. CEO Scott McNealy, and you may hear one of his favorite quips: "Conventional wisdom doesn't contain a whole lot of wisdom." He believes it because of his own experience. Consider 1995: All of Sun's competitors -- Hewlett-Packard, IBM, and Digital Equipment Corp. -- were busy developing new servers to run the next version of Microsoft Corp.'s Windows software. Wall Street pundits begged McNealy to show some common sense and do the same. But he refused, instead cranking up his investment in Sun's own software, called Solaris. What happened next made McNealy look brilliant. Rivals couldn't match the speed, reliability, and security of Sun's servers. As the tech boom took off, Sun's boxes became the must-have gear for thousands of Internet startups and financial firms. Sales soared; profits exploded.
Six years later, as the boom of the late 1990s came to a crashing end, Wall Street had more advice for McNealy: Batten down the hatches for the storm ahead; slash research; lay off staffers; and get serious about low-cost products. Once again, McNealy held his ground. But this time, he was dreadfully wrong. Sun's sales have tumbled 48% in the past three years, it has lost a third of its market share -- and it continues to head south even as its rivals ride the economic recovery. Its stock, which reached $64 in 2000, trades at about $4. No other major player has been weakened as much during the tech downturn. "Right now it looks pretty grim," says Geoffrey A. Moore, author of several tech-industry books, including Crossing the Chasm.
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Now some investors believe it's time for McNealy to follow his former execs out the door, or at least give up the CEO post and retain only a chairman's role. Says analyst Andrew Neff of Bear, Stearns & Co.: "It's pretty standard that if the ship keeps going toward the iceberg, you change the captain."
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