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CIOs voice skepticism about Sun CEO impact

Linda Tucci, Senior News Writer and Shamus McGilliguddy, News Writer
From loyal Sun Microsystems Inc. users to industry pundits, the reaction to Monday's news that Scott McNealy would relinquish day-to-day operations at the company he co-founded was nearly unanimous: What took so long?

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Hailing McNealy as a visionary, CIOs agreed that the cocky, outspoken Sun leader had lost street cred and that a change at the top was what the company needed. As for whether the move will position Sun to take on its increasingly powerful competitors -- the jury, say CIOs, is still out.

Jon Payne, CIO at Wild Oats Markets Inc, the natural and organic supermarket chain, said he was not surprised by yesterday's announcement, given Sun's "consistent poor financial performance."

"I'm surprised it took so long, but he is the company founder," Payne said in an e-mail. "I used to consider Sun as being agile and innovative. My impression is the competition has caught them."

Boulder, Colo.-based Wild Oats uses Sun for its primary Unix system platform, running its ERP and major transactions systems on Sun. The chain will continue to use Sun, Payne said, noting that the people who matter to him -- the systems engineers -- are "still great." But he added that he will remain concerned about Sun's viability "until they string three or four profitable quarters together."

And while McNealy exhibited plenty of confidence handing over the reigns to Jonathan Schwartz, the company's president and chief operating officer, CIOs say they're not so sure Schwartz has what it takes to bring Sun back to its former glory days.

"From what I have seen and heard, he is more of a visionary than an operational manager," said Venkateswara Gaddipati, CTO at Needham, Mass.-based Upromise Inc. "At this stage, Sun needs more of an operational guy but if he can get that talent from the new COO, it could be good for the company."

McNealy announced Monday during Sun's quarterly earnings call that he would step down and Schwartz would take over as CEO.

Schwartz, who wears a distinctive ponytail, joined Sun in 1996 as executive vice president of software. He has been described as the handpicked successor to McNealy, who headed the company for 22 of its 24 years.

The earnings report was a mixed bag. The company lost $217 million in its fiscal third quarter. Sun said much of that loss was attributable to expenses associated with recent acquisitions and stock-based compensation charges. Sun's revenue rose 21% to $3.18 billion from last year's third quarter, slightly below expectations of $3.21 billion.

But McNealy said the company was stabilizing and Schwartz was the right man for the job. He said the two of them have worked so closely in recent years that they "finish each other's sentences."

Andre Mendes, CIO of the Public Broadcasting Service (PBS) in Alexandria, Va., said it was "doubtful at best" that Sun was on the right track. "The company is now competing squarely in an area where the margins are far lower than any business that Sun has ever been involved in the past. Its competition will continue to eat its lunch."

Mendes said Sun is completely unfocused, trying to do business in too many sectors. He said McNealy's "lack of pragmatism" has been a tremendous detractor for the company, its bottom line and "my willingness to ever again buy a Sun-branded product."

Mendes said Schwartz would be a "far more pragmatic and thoughtful" leader for the company, who would focus "on the bottom line rather than his image."

During the conference call Monday, Schwartz said he would spend his first 90 days as CEO assessing the company's research and development and marketing operations, finances and corporate resources.

Gordon Haff, senior analyst at Nashua N.H.-based Illuminata Inc., said McNealy's decision to step down as CEO won't represent a change in strategic vision given the way that Schwartz and McNealy have worked together in recent years.

Haff said Schwartz has been acting more as a CEO and McNealy as the COO, and that much of the current strategy comes from Schwartz anyway.

"This is not Mark Hurd coming in and replacing Carly Fiorina," Haff said. "In this case, you haven't had a high-visibility board; McNealy was grooming Schwartz. There could certainly be adjustments, but I certainly would not be biting my nails expecting some major shift in directions."

Haff said McNealy would remain a visible presence at the company. McNealy will still serve as chairman of its board of directors, and as chairman of Sun Federal, which sells technology to the U.S. government.

Charles King, research director at Pund-IT Research in Hayward, Calif., said CIOs who do business with Sun should be wary of Sun's management. Despite McNealy's assertion that he is leaving at a time when revenue is growing and the company is stabilizing, King said he still has questions about the company's future.

"For CIOs who are engaged as customers of Sun, they need to pay attention to what's happening there," King said. "McNealy was really able to drive troops by charisma and bent of will, but at the end of the day the army is fighting a losing battle. So, the real question is, while Schwartz is a safe choice, is he really going to be able to lead the company back into the light?"

Bruce Barnes, a consultant whose firm, Bold Vision LLC, advises CIOs, said Sun will be better off with McNealy stepping down.

"Sun would not be what it is without Scott's drive and vision and energy, and the excitement that he generates just being him," Barnes said. "There's a value to that. But sometimes the best entrepreneurs make miserable managers."

Under Schwartz, Barnes said, Sun must reach beyond hardware and partner more with top-tier technology companies.

Today, more than ever, the sweet spot for IT leadership is working across boundaries," he said. "I think Sun needs to outwardly be more driven to that. It's almost as if they do that as an afterthought."

This article originally appeared on SearchCIO.com.

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