New Sun CEO Schwartz Talks Tactics

In the next 90 days, Schwartz and Sun will be "embarking on a comprehensive review of all growth opportunities," he said on a conference call Monday evening.

First, Greg Papadopoulos, now executive vice president of R&D, and Schwartz will oversee Sun's nearly $2 billion R&D budget, Schwartz told a quickly convened teleconference Monday night after the company's earnings call. Papadopoulos had been CTO for the Santa Clara, Calif. company.

Anil Gadre, CMO and Don Grantham, executive vice president of global sales and service, will examine the company's marketing, sales, services, systems engineering and operations both at headquarters and in the field to make sure they target the biggest opportunities

Schwartz cited open-source Solaris -- which he claims has seen more than five million downloads -- as one huge opportunity.

Michael Lehman, CFO, and Bill McGowen, senior vice president of human resources, will review corporate resources across the world.

On the call, outgoing CEO Scott McNealy said Schwartz's promotion was done at McNealy's behest. "This was my decision and was supported by the board. This was my recommendation, which I've been developing over the last six or seven years."

That contention may raise eyebrows among company watchers who have long said McNealy's refusal to cede power has led to an exodus of qualified top lieutenants including Ed Zander, now CEO of Motorola.

Perhaps anticipating questions over the timing of the announcement -- which came as Sun announced large third quarter losses, McNealy said "this is our weak quarter. Let Jon announce the strong quarter."

Indeed the quarter was problematic, although Sun touted some bright spots. Losses soared to $217 million for the quarter ended March 31, up from $28 million for the year-ago period. Revenue grew 21 percent to $3.2 billion, compared to $2.6 billion a year ago.

"We're driving after efficiency and we're driving after teamwork," Schwartz said, noting that most of the top-tier execs will even share offices to make his point.

McNealy will bunk with Crawford Beveridge, chief human resources officer, Schwartz with Lehman.

Both Schwartz and McNealy said that McNealy will remain on as an active and full-time chairman, continuing to beat the drum for Sun technologies. McNealy said he will be on the road more than ever, visiting large customers and "heads of state."

Sun partners took the news in stride. A change in McNealy's status has long been rumored, especially since the dot-com bubble burst took a huge toll on the company. Douglas Nassaur, president and CEO of TrueNorth Technology, an Alpharetta, Ga., Sun software elite partner, said Schwartz will bring a sharper software focus to Sun, which will benefit partners.

"Schwartz is a free thinker, which I respect," said Nassaur. "He is going to shake things up for the better. Schwartz knows it is not about hardware. It is not about software anymore. It is about software services and that is where Schwartz is going to take this."

"I think Schwartz understands the software side of Sun and recognizes there are lots of assets on the software side of Sun that can contribute to Sun's overall market value," he said.

Nassaur is also glad McNealy will stay on in some capacity.

"I was not a big fan of what some were suggesting, which is bringing someone in from the outside," he said. "I think the fact that Jonathan and Scott are in sync means Scott's vision won't get tossed aside."

John Murphy, executive vice president of Advanced Systems Group, a systems integrator based in Denver, said he expects business as usual. "I don't think there's going to be any major changes," he said. "As president, Jonathan was pretty much running all the operations of the company. Scott was working on strategy and longer-term vision." Murphy has been a Sun partner 19 years and formerly spent two years on Sun's VAR council.

Shareholders will no doubt cry for more cuts to boost profitability. Sun employs 38,000 people. But Schwartz focused on the upside, on growth opportunities, citing energy-efficient data centers, dynamic languages, open-source Solaris in particular as exciting. "This is about how to grow, it is not about how to take a whack in headcount," he noted.

Asked if he foresees a huge change in strategic direction, Schwartz reacted strongly.

"No. Here's our vision. The network is the computer."

That's the mantra Sun has used for years, including through the dot.com boom.

ADDITIONAL REPORTING BY STEVEN BURKE AND STACY COWLEY.