Interview: McNealy Unplugged

Sun Microsystems can't get no respect.

So said Scott McNealy, chairman, chief executive officer and president of Sun, who linked his company's image with the most famous line by American comedian Rodney Dangerfield during this recent interview.

McNealy makes an apt comparison to Dangerfield because both relish a role as the ultimate underdog. Sun, after all, is taking on IBM Corp. in servers, Intel Corp. in chips and Microsoft Corp. in software. In addition, Sun faces a hefty dose of public criticism from rivals such as Hewlett-Packard Co. (HP) and is chastised by some financial analysts as being a technology miser, squeezing the last bits of revenue out of a dying business model.

McNealy shrugs off the nay-sayers, saying a lack of respect has followed Sun through its 20 years but has never affected the company's ability to innovate or sell servers. During the interview, McNealy discussed how he uses his experience as founder to keep the company focused and why he isn't worried about HP as a competitor in the server market. He even offered some surprise praise for Microsoft's leaders.

Q: What challenges do you face right now, not only keeping your current customers but attracting new ones as you try to expand into new businesses?Scott McNealy (SM): Our business is outfitting enterprises and service providers with network computing equipment. We are not going to go into doing printers or being a systems integrator or hoster or anything like that.

We are going to expand into some areas that aren't necessarily new -- things like StarOffice (Sun's productivity suite) that has unbelievable momentum right now. You just saw the Sony announcement last week (to pre-install StarOffice on Sony computers in Europe), which is hopefully the harbinger of a lot more big-name brands. You see it going out in Wal-Mart (Stores Inc.), you see it in Asia big time, you see it in Germany big time. All the Linux world has been driving it pretty hard, but now you start to see it in the mainstream. So, that's a nice expansion.

Then we are announcing a big new initiative for the Linux desktop with our enterprise client. I think that is kind of new. But we have always played at the edge, we have always played horizontally, we have always played vertically.

Q: You are talking more about products that are bit outside of your core business. What's the main challenge in the server market?SM: It's no different than any other time. It's just constantly refreshing (products) and implementing and executing and driving service and support. That's never new. That never goes away. We are unfortunately not a monopolist. I wish we were. If we don't cannibalize our own business, somebody else will.

Q: Since HP completed the merger with Compaq Computer Corp., it seems to have turned up the heat against you. Carly Fiorina, chief executive officer and chairman at HP, in particular, has been talking a lot about companies that won't recover from the slowdown, and I think she is pointing at you as one of them.SM: Well, I think there are two different approaches. One is focus, and the other is big. Our strategy is to focus on network computing and the infrastructure that people will need to deliver services. Our deal is to remove complexity out through (research and development), not through services. Both answers will end up playing out there. It's just, which one do you think will play out better longer term?

It's not like we are going away. They can have vendettas, we will keep on doing what we do.

Q: You and Dell both fit into that category of being focused vendors. You are both also still led by a company founder. To what extent is that a plus for Sun and where does it hurt you?SM: Look at all of the great companies in the world. IBM had Watson (Thomas Watson Sr.) and Watson (Thomas Watson Jr.) Hewlett-Packard had (William) Hewlett and (David) Packard. They had the founders there for a long, long period of time, driving the company in a positive direction. Look at what is going on at Microsoft with (Bill) Gates and (Steve) Ballmer. I think that is a good thing.

I think that keeps focus and keeps the company from bouncing around culturally. People understand what the rules of the road are. It doesn't mean that us founders don't have our blind spots and weaknesses, but I think the company will understand what those are and tends to organize to backstop those issues.

But I don't really spend much time on that. Go get some tenured business school guru to wax on about it. I told the board if they want to get rid of me, get rid of me. In the meantime, I will work as hard as I can.

Q: Do you think you waited too long to bring out a Linux on Intel server? Did you wait too long on an Intel-based system because SPARC (Sun's chip architecture) is in your blood?SM: If you look at what Sun has done that no one else has done in the Microsoft era, we have developed a real live developer community. There is the .Net developer community and the Sun ONE (Open Net Environment), Java, XML developer community. After that, there really aren't many interesting developer communities. The rest are small and shrinking.

We are doing everything we can to provide as much opportunity for the Sun ONE, Java, XML community. We think we can leverage the 32-bit price-performance points of the low end of the Intel space to make Sun ONE a better price-performance environment for some areas.

Q: It seemed that HP lost a fair bit of business because of turmoil caused by the acquisition of Compaq, and IBM picked up some of that business. Why have I not heard much from you there?SM: Everywhere that I go and everyone I talk to says it is just IBM and Sun on the short list. We don't see HP unless it's in the HP installed base.

Q: You seem to be taking a very hands-on approach to running the company right now. You moved your office from Santa Clara to Menlo Park to be next door to the customer center and appear to be talking a fair bit to the press. Is this to keep tight control on the company during these tough times?SM: It's just different. Since I have gone on the GE (General Electric Co.) board, I am spending way more time internally. I'm doing way fewer keynotes, way fewer external speaking engagements. I spend almost all my time with shareholders, employees, customers and very little with the media lately. (McNealy joined the GE board in December 1999.)Q: You leave the GE board this month, right?SM: That's right. I am not independent. I will never be independent. Like 11 or 12 percent of our business goes through GE Access (an arm of GE that sells computers and services).

Q: You've talked a fair bit about how much you have learned from GE and Jack Welch, the former chief executive officer at GE. Will this be a loss for you?SM: I have learned a ton from Jack, Jeff (Immelt, chairman and chief executive officer at GE) and the other board members. The good news is that I know everybody over there. I know all the senior management. They know to call me. If anything, there might actually be improved communications at the business level. I might have felt too pushy as a board member. Now, I don't feel at all constrained (laughs).

Q: For HP, the merger seems to have created a bit of a rallying point for those employees that weren't laid off. They appear very aggressive at HP right now, with people working to prove the deal worked. How does Sun maintain a similar focus?SM: We've always been the underdog. We are probably happier when BusinessWeek is issuing their "Will the Sun rise again?" cover story every four years. We are kind of the Rodney Dangerfield. We are okay with that. We are comfortable with that.

There has probably never been a more successful company with more negative press. We did have a nice two-year run when the dot-com bubble was taking off, but that is two years out of 18, where it's been "they're dead, they're history, they're toast." We all get a big chuckle out of it and put our heads down and work hard.

(Edited for clarity and content.)

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