McNealy--an engineer's witty patron By Jim Kerstetter URL: http://news.zdnet.com/2100-3513_22-6064575.html The technology industry just became less interesting. Scott McNealy, one of the longest-serving and best-known CEOs of Silicon Valley, announced Monday that he was stepping down as chief executive of Sun Microsystems. McNealy, 51, will stay on as company chairman and a full-time employee dedicated to government sales. If McNealy should really step out of the limelight he's held for more than two decades and allow Jonathan Schwartz, his talkative, 40-year-old protege, to become the public face of Sun, it will be the end of one of the most remarkable runs in tech, or perhaps all of American industry. "Sun has been a labor of love for me for since 1982 and it has been an honor and privilege to serve as its CEO for the past 22 years," McNealy said in a statement. McNealy, whose father was vice chairman of American Motor Corp., is fond of car analogies. So it's not a stretch to compare his impact on the tech industry to the likes of Henry Ford and other pioneers in Detroit. McNealy and three other people--Vinod Khosla, Bill Joy and Andy Bechtolsheim--founded Sun with the idea of taking a Unix operating system created by Joy and others at the University of California at Berkeley and putting it into relatively inexpensive workstation computers that would be cheaper and more flexible than the so-called mini-computers sold by the likes of Digital Equipment Corp. and Apollo Computer. The idea was a runaway success, and Sun as much as any other company is credited with causing the demise of those East Coast computing giants. But the defining moment for Sun came with McNealy & Co. aggressively moved into the server business. That move, coupled with the creation of Sun's Java software development platform and the dot-com boom, propelled Sun's rapid growth in the 1990s. But when the dot-com boom ended, critics say McNealy was too slow to cut costs. And in an irony for an executive who in his youth undercut the bigger, slower-moving competitors with a low-cost alternative, McNealy was slow to react to the competitive threat presented by servers built with the Linux operating system. He had hanging on a coat rack in his office a Linux penguin suit--a keepsake from a press conference in which he proclaimed that, once and for all, Sun "got" Linux--but critics say he never quite got a handle on how to deal with the competitive threat that Linux posed. Down-to-earth approach Still, McNealy's legacy to the tech industry may be as much his colorful personality as the company he helped build. If Intel's Andy Grove represented the hard-driving business professionals of Silicon Valley and Oracle's Larry Ellison is still the face of the Valley's hyper-rich raconteurs, McNealy has been the down-to-earth face of the Valley's engineers--more comfortable in jeans and sneakers and more apt to talk about golf and ice hockey than fabulous vacations and yachts. While many executives would wine and dine customers at elite restaurants, McNealy preferred more easy-going places like Joe's American Bar & Grill in Boston, a mid-priced burger joint in the New England city's Back Bay. He also preferred the golf course--where McNealy is considered by Golf Digest to be among the top executive duffers in the country. McNealy was never actually an engineer. He was an economics major at Harvard University (where, not surprisingly, he was the captain of the golf team), and received an MBA at Stanford University's School of Business. But few questioned his respect for engineers, whether it was software and design visionaries like Joy and Bechtolsheim, or rank-and-file engineers. McNealy often joked that he really didn't understand what the tech guys were talking about--usually before he launched into a detailed description of company's products that often demonstrated a remarkable knowledge of the specification of dozens of Sun products. Not surprising. Though McNealy downplayed his own intellect, he actually scored a perfect 800 on his math SATs in high school. Some would argue that McNealy's respect for those engineers cost him dearly during the tech bust, when he appeared reluctant to cut into Sun's considerable research and development budget, believing the only way for the company to save itself was to innovate its way out of it. Of course, McNealy press conferences became a favorite among the computer press because of his witticisms. He famously compared the merger of rivals Hewlett-Packard and Compaq Computer to "two garbage trucks backing into each other in slow motion," and said using Microsoft software was like using drugs, because "the first hit is free." Did that wit and love of company betray him? Some believe McNealy went too far when he called Microsoft's Bill Gates and Steve Ballmer "Ballmer and Butt-Head," and that the Sun founder made the long-running feud with Microsoft a distraction for his company before settling the fight two years ago. McNealy also feuded for years with Wall Street analysts, who thought he should have made cuts deeper and faster, a move he thought would rob the company of its biggest asset: the engineers. Perhaps not surprisingly, investors reacted well to his resignation, sending Sun shares up more than 6 percent in after-hours trading Monday evening. So what will McNealy do now? He said he will remain active with the company and work as a customer advocate inside Sun. It's also likely the father of four sons will spend more time with his children and on the golf course. But it's hard to imagine Sun--or Silicon Valley--without McNealy leading the charge. Top News Monday, April 24, 2006 SUN CEO Steps Down After 22 Years at Helm SAN FRANCISCO (AP) - Scott McNealy, the often outspoken co-founder of Sun Microsystems Inc. and one of Microsoft Corp.'s most vocal critics, stepped down as CEO after 22 years Monday as the pioneering maker of computer servers reported a wider quarterly loss. Jonathan Schwartz, Sun's president, will retain his current position and take over as chief executive, while McNealy will remain chairman and a full-time employee of Santa Clara-based company. ``This isn't about me. It's about a big moment in Sun's history and I'm proud to share that with you,'' McNealy said on a conference call, adding that the idea to resign as chief executive was his. ``There's lots more work to do and I'm certainly going to stay around and support that.'' Sun's shares surged nearly 9 percent after the announcement of McNealy's exit and the $217 million loss that met Wall Street expectations. McNealy was under increasing criticism from analysts and former executives, who said he wasn't doing enough to restore the company to its more profitable days. McNealy's mantra ``The network is the computer'' helped Sun grow into one of the dominant providers of large computer servers that sell for tens of millions of dollars apiece. Following the collapse of the Internet bubble in 2000, he saw revenue decline and frequently came under pressure for not cutting costs enough. He also frequently picked fights with competitors, calling Microsoft's Windows operating system a ``hairball'' and its Outlook e-mail program ``Look out'' after a spate of costly viruses targeted it as a means of spreading. Microsoft and Sun also sparred in court. In 1997, Sun sued Microsoft in federal court over a licensing agreement for Sun's Java universal programming language. Sun claimed Microsoft tried to prevent Java's adoption on competing operating systems by adding enhancements for Windows-based computers. Sun lawyers also played a part in the Justice Department's antitrust suit against Microsoft. After a federal judge in Washington ruled the Redmond, Wash.-based software maker illegally used its monopoly power illegally, Sun filed its own antitrust complaint. The two companies settled the case in 2004 for $1.6 billion. McNealy co-founded Sun Microsystems in 1982, developing it into a scrappy Silicon Valley startup whose high-powered computers, called workstations, became a major staple with engineers and businesses. In 1996, after Microsoft products began encroaching on Sun's territory, McNealy reinvented the company as a maker of servers, which performed the same tasks as mainframe computers for a fraction of the cost. The move put a major crimp in key revenue generator for IBM Corp. Sun's servers, which came about just as the Internet was morphing from an academic hobby to a mass communication platform, also helped speed the transformation. ``He was an instrumental part of making the Internet happen,'' said Rob Enderle, principal analyst with the Enderle group. ``When your on the Web and doing shopping, say a little prayer for Scott because he's part of what got you there.'' McNealy, 51, and Sun harken back to an earlier era of Silicon Valley, when companies were run by their swashbuckling founders. With Apple Computer Inc. and Oracle Corp. as exceptions, company founders these days typically make room for more experienced leaders, as was the case with Google Inc. and Yahoo Inc. Sun's revenue surged in the late 1990s as Internet startups such as Webvan, eBay Inc. and Amazon.com went public and more established companies boosted computer spending amid fears that older systems would fail as the calendar reached the year 2000. Sun's revenue peaked in 2001 at $18.3 billion. Since 2001, Sun's sales have declined every year, sinking to $11.1 billion in the year that ended in June. Consensus estimates call for Sun to have sales of $12.8 billion for fiscal 2006. Over the past five years, McNealy's relationship with some Wall Street analysts grew strained as they criticized him for failing to adapt to a changing market place. Sun, for instance, has continued to make its own UltraSparc processor even as lower priced Intel Corp. chips tackle many of the same chores. Schwartz, 41, joined Sun in 1996 with its acquisition of Lighthouse Design Ltd., a 35-employee outfit he founded to make software for Steve Jobs's NeXT computer. Named president and chief operating officer in 2004, he graduated with a bachelor's degree in mathematics and economics from Wesleyan University in 1987. He said he will spend the next 90 days performing a comprehensive review of the company with the help of Mike Lehman, who rejoined Sun as chief financial officer in February after holding that position between 1998 and 2002. Schwartz said he had no immediate plans to change Sun's strategy, although he declined to say if he planned further job cuts or other restructuring. Sun has about 38,000 employees. On Monday, Sun posted a wider fiscal third-quarter loss, as costs for acquisitions, stock-based compensation and restructuring chipped away at higher revenue. The net loss for the three months ending March 26 was $217 million, or 6 cents a share, compared with $28 million, or 1 cent, in the same period last year. Revenue grew 21 percent to $3.18 billion from $2.63 billion, as recent acquisitions boosted sales. The loss met Wall Street expectations. Analysts were expecting the company to post a loss of 6 cents per share on sales of $3.2 billion, according to a survey by Thomson Financial. News of McNealy's departure and the company's results were announced after financial markets closed. Earlier, Sun shares closed 5 cents higher to $4.98 on the Nasdaq Stock Market. In extended-session trading, they gained 44 cents, or 8.8 percent. In the past 52 weeks, Sun shares have traded between $3.42 and $5.40. Its shares peaked just above $64 in September 2000 as the dot-com boom was coming to an end. On the Net: http://www.sun.com