Give Sun Microsystems CEO Scott McNealy credit: He's not one to back down from a challenge. Sure, investors may have dropped Sun's (SUNW ) stock price from $64 to $3.28 over the last two years. Sales are off 32% from their peak. And competitors are closing in on his computing markets. But McNealy is sticking to his belief that his midsize company can have an outsized influence on the computer industry.
BusinessWeek Silicon Valley Correspondent Jim Kerstetter recently conducted a candid e-mail interview with McNealy. Edited excerpts follow:
Q: You've made significant changes to the management structure of Sun, from the people who report directly to you on down through the entire company. Why? And why make those changes in such a tough economic environment? A: The changes were part of our long-term succession planning, which really paid off. We've got an incredibly deep bench and stability as a result. We flattened and streamlined the organization, eliminating two levels in the executive staff alone. I think every executive, every manager, should have 10 or 12 direct reports. That way, they can't micromanage even if they want to -- they have to lead. We're driving more accountability, agility, and leadership in the company.
Q: You've said in the past that Sun is providing a giant puzzle called the "Web tone switch" [the concept that computer networks should function as seamlessly as the telephone system] to customers. Is any one piece of the puzzle more important than another? A: Right now, customers are struggling with utilization, complexity, and cost. By pulling the pieces together for them, creating a virtual Web tone switch that's as reliable as dial tone, we can hit these issues head-on. Customers care less about the individual element and more about the system. That's why we're called Sun Microsystems.
Q: Sun is working on a project called N1 [for Network One] that's supposed to make computer networks as reliable and easy to use as a utility, like electricity. Can you explain the importance of N1 to Sun's future? A: N1 is an important effort that will shape the way services are delivered over networks. Right now, our customers are spending between 70% and 80% of their info-tech budgets on administration and operations. Remember when the telephone industry had switchboards and operators? They had to find a better way or be overwhelmed.
That's where we are with data centers today. We have to find a better way, or we'll be forced to train everyone under the age of 30 to work as system administrators.
N1 is one of Sun's major technology initiatives. It's as important to the systems administrator as Sun One [Sun's e-business software] is to the developer. Through both initiatives, we are engineering the complexity out of computing infrastructure so customers can spend more time serving their customers and beating competitors, and less time running technology.
Q: How long will it take for Sun to see a financial benefit from N1 development? A: N1 is contributing today and will contribute more in the future. The first product, a virtualization engine [which allows a network manager to treat his entire network like one big computer], is due out around the end of the year. N1 is an extension of what we're already doing in terms of services on demand, grid-computing software, and cross-platform storage management.
Q: Analysts are applauding your efforts to organize all of Sun's software development under one executive vice-president, Jonathan Schwartz, and they see enterprise software as a big revenue opportunity for Sun. That said, do you? A: Yes. Whether it's Java, our Sun One family [of e-business software], Star Office [a competitor to Microsoft's Office suite], or our Secure Desktop Client for Linux [a low-cost PC due early next year]. But the big revenue opportunity is in the system, just like General Motors' revenue opportunity is in cars, not steering wheels. We deliver iron-wrapped software that's engineered to perform at a systems level, delivering the best throughput and security for customers. And we do it in a way that customers get to keep their options open.
Q: You've already saved close to five margin points by driving efficiency into your manufacturing process. Can you do more? If so, how?
Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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