"Interesting. McNealy steps down and no comment on this thread."
I didn't know until I got this morning's, "My Online Journal." I've been paying more attention to other things.
At Sun, McNealy to Cede CEO Job;
Loss Widens but Revenue Rises 21%
By DON CLARK and CHRISTOPHER LAWTON
April 25, 2006; Page A3
Sun Microsystems Inc. said co-founder Scott McNealy will give up the job of chief executive to the No. 2 person at the company, Jonathan Schwartz, a historic transition for a computer maker facing stiff pressure to cut costs and boost revenue.
Mr. McNealy, 51 years old, will remain chairman and a full-time employee. Mr. Schwartz, 40, who had been president and chief operating officer, will retain the former title.
The management change was announced shortly after Sun reported a wider fiscal third-quarter loss of $217 million, or six cents a share, including $87 million in costs associated with two acquisitions and $57 million in costs from stock-based compensation. In the year-earlier period, Sun's loss was $28 million, or one cent a share.
Revenue rose 21% to $3.18 billion from $2.63 billion, growth that the company said reflected the acquisitions as well as long-awaited gains for its traditional business in some markets. Sun's loss matched Wall Street's average estimate, as reported by Thomson Financial, though revenue didn't quite meet analysts' average forecast of $3.21 billion.
Mr. McNealy, one of Silicon Valley's best-known executives, is a sharp-witted maverick known for battling Microsoft Corp. and exploiting the Internet boom. But the company later shrunk dramatically, as corporations slowed computer purchases and competition stiffened from rivals International Business Machines Corp., Hewlett-Packard Co. and Dell Inc.
More recently, some analysts have recommended deep head-count reductions. The company's stock is up about 19% so far this year, partly on speculation that Mike Lehman, who rejoined the company as chief financial officer in February, might push Sun's costs down to meet rivals.
The stock stood at $4.98, up five cents, in 4 p.m. composite trading on the Nasdaq Stock Market, before the announcements. Following word of the management change, the stock rose 8.6% to $5.41 in after-hours trading.
Mr. McNealy stressed a series of positives -- not problems -- in explaining the biggest management change since he took the top job 22 years ago. The Santa Clara, Calif., company is starting to grow, is generating cash, and its computers are competitive again, he said. And Mr. Schwartz is ready for the task.
"We are handing a wonderful asset off to him with the upside in front of him," Mr. McNealy said in an interview. "That is the only fair and responsible way."
Some investors still aren't excited, with Sun's stock far below its 2000 high of $64 a share. Speculation that Mr. McNealy would step aside has regularly popped up, including in a research note in early March from Mark Stahlman, an analyst at Caris & Co. Mr. McNealy had repeatedly said he wasn't leaving the company.
Yesterday, Mr. McNealy told analysts that said the change reflects years of succession planning, with the timing of the change his own decision. Besides the health of the company, Mr. McNealy said he wanted to make sure Mr. Schwartz wouldn't pursue a CEO job elsewhere. "I saved him for Sun," Mr. McNealy said.
James Barksdale, lead outside director at Sun, said the company could benefit from Mr. McNealy's experience and Mr. Schwartz's energy. "I think it's a stronger team this way, given exactly where Sun is today," he said.
Toni Sacconaghi, an analyst at Sanford Bernstein, called the change "a strong signal that the board is looking to make changes."
Mr. Schwartz, known for a trademark ponytail, joined the company in 1996 after Sun acquired his company, Lighthouse Design Ltd. He has held a series of management positions at the company, including running the company's software unit.
Mr. Schwartz is also one of Silicon Valley's most prominent executive bloggers -- using an online column to take potshots at competitors and make pronouncements about the future of technology. But Mr. McNealy said his successor also has strong operational skills, helping to boost Sun's profit margins as well as its product lines.
Mr. Schwartz said he plans to help devise a new operating plan for the fiscal year beginning in July, but will hold the line on costs rather than slashing Sun's work force dramatically. "We're going to focus in on growth opportunities, and aggressively so," he said.
Write to Don Clark at don.clark@wsj.com and Christopher Lawton at christopher.lawton@wsj.com
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