Lost In Translation

That statement is the parting comment a confident Sun Microsystems CEO Scott McNealy left with me at the end of an in-person interview in mid-September at Sun's annual conference briefing. But just 10 business days later, Sun sounded a completely different note when it stunned Wall Street with the announcement that it would post a larger-than-expected loss for the quarter ended Sept. 28. In conjunction with that disclosure, the Mountain View, Calif.-based company said it will take a $1 billion charge against earnings for the previous quarter. Not good.

With that announcement, much of the hard-fought momentum Sun had achieved during the past three months came to a halt. Within hours of the disclosure, for example, several investment houses lowered their expectations of Sun and its fortunes, while investors sent shares tumbling. In layman's terms, Sun hit a brick wall.

What makes the crash so awful is that the company was cruising at a high rate of speed. It's turned heads with Mad Hatter, its revolutionary, low-cost Linux-based Windows desktop alternative, while the Sun PR machine has been running above the red line. What follows are some sobering thoughts on the state of the company.

No. 1: The time has come to ask whether McNealy can alone handle the job. For all his moxie, vision and drive, Sun continues to stumble. While it needs someone to sway those predisposed to think another way, something is getting lost in McNealy's translation of Sun's technical vision and sales message.

After the company's stunning financial announcements, McNealy's credibility on Wall Street sank to a new low. Announcing an earnings miss on that scale just 10 days before results are due is unacceptable. Perhaps McNealy was counting on a few big deals to deliver the quarter. Maybe he was simply in the dark about how many opportunities were actually closed in the period. And as difficult as it is to imagine, Sun's board, employees and partners should take a hard look at whether one of the industry's most successful and outspoken CEOs needs some help.

No. 2: Sun's strategy needs rethinking. Just when the company is about to radically alter the computing paradigm that has existed since Microsoft grabbed a stranglehold on desktop computing nearly a decade ago, the time to seriously question Sun's technology strategy is at hand.

For all its recent accomplishments with StarOffice and the Java Desktop and Enterprise Systems, the strategy to simultaneously take on Microsoft, IBM and Intel is proving to be an insurmountable challenge. Sun is the only major computing company aligned against four of the five major computing giants. Intel, for example, has allies in IBM, Microsoft and Hewlett-Packard. And IBM and HP both have ties to Microsoft and Intel. But Sun? It rivals with almost every one of the companies that make up computing's power quintet--Cisco, HP, IBM, Intel and Microsoft.

Sure, Sun has friends at Oracle. But Oracle is not the powerhouse it once was. And as for Cisco, it's much closer to IBM. To date, no company has successfully taken on the world leaders in software, hardware and microprocessors at the same time. Yet that's Sun's strategy.

No. 3: Sun must increase the size of its partner ecosystem. In the United States, the company has only a fraction of the channel partners its rivals have. They account for about one-third of the company's total revenue. As good as they are, however, they cannot alone address all of the needs of the Fortune 500, the federal government and the Global 2000. That says nothing of their inability to address state governments, midsize enterprises or small and midsize companies.

Sun has clearly made the right move in embracing Tech Data, which will help Sun build its base of partners specializing in volume hardware and software products. But what's missing is the ability to meet customer needs at every turn and in every fashion. Although this notion might not sit well with current partners struggling with low margins, gray marketing and used Sun equipment, the answer to Sun's problem is a bigger partner ecosystem.

What makes Sun's situation so frustrating is that the company is truly on the cusp of some remarkable things. Microsoft doesn't see it coming, but a Linux desktop could hit it like the brick wall that stopped Sun cold. And Sun's recent efforts to recognize and reward partners are world-class. Unfortunately, they may be too late.

Let me know if you agree that Sun is sinking.