Sun Co-Founder Departs for Startup He Funded

Just as Sun Microsystems' sales slump and investors grow impatient with the company's turnaround plans, Andy Bechtolsheim announces he's leaving—again

By Aaron Ricadela

As though the market forces battering Sun Microsystems weren't enough, the troubled computer company is absorbing another punch. Andy Bechtolsheim, a co-founder who returned to the company four years ago as a technical savior, is leaving again for the startup world.

Bechtolsheim, who designed Sun's (JAVA) original workstation in the early 1980s after founding the company with Chairman Scott McNealy and others, returned in 2004 after a nine-year hiatus and has worked on lower-priced computers, featuring chips from Advanced Micro Devices (AMD), that Sun hopes will revive growth.

On Oct. 23, Bechtolsheim is leaving Sun for the second time to become chairman and chief development officer at Arista Networks, a startup he has funded that sells a powerful network switch for data centers, and whose customer list includes Google (GOOG). Arista's CEO is Jayshree Ullal, who left Cisco Systems (CSCO) in May after 15 years at the company, and who had worked on some of the company's key products (BusinessWeek.com, 1/28/08).

The departure of Sun's star engineer, who had spearheaded development of a new line of more affordable products the company is pushing, comes as Sun's sales slump and investors grow impatient with the company's turnaround plans. On Oct. 20, Sun said it expects a steep first-quarter loss, sending its shares into a further tailspin. Shares of Sun closed on Oct. 22 down 5¢, or 1%, at 4.72. The shares have lost 18% in the past two days and are down 74% this year. "They just keep taking body blows," says Gordon Haff, an analyst at market researcher Illuminata. The company formally issues quarterly results on Oct. 30.

A Startup with Promise

Arista, a 50-employee company started several years ago with $50 million in funding by Bechtolsheim and chief scientist David Cheriton, sells a line of switches that can transfer data at extremely high speeds from servers that run Web sites and technical computing centers, at a fraction of the cost of comparable products from Cisco and other vendors, according to its executives. Other customers include Lawrence Livermore National Laboratory and digital media streaming company BitGravity. The market for its main product—10-gigabit Ethernet switches—could grow to $5 billion to $10 billion within five years, from about $500 million today, according to Ullal.

As companies serve massive amounts of data through the Internet, the switches that manage the flow of digital traffic have become a bottleneck. "Why should the network cost as much as the server?" says Bechtolsheim, in an interview with Ullal in a bare-bones office in Silicon Valley. "It makes no sense."

By contrast, Sun's server business is under pressure. Margins on the large computers that run corporate data networks are being squeezed amid widespread adoption of standard processors from Intel (INTC) and AMD, and the popularity of the open-source Linux operating system.