McNealy Says He Wishes He Used Channel More In Past

At the same time, Chairman, President and CEO Scott McNealy said he wished Sun had leaned more on the channel in the past.

Sun plans to cut about 4,400 employees, or about 11 percent of its worldwide workforce, over the next few quarters, said Steve McGowan, Sun's CFO and executive vice president of corporate resources.

The cuts will come first in North America over the next four to five weeks, but will be spread throughout the company across all geographies and departments with one exception--R and D should remain pretty much intact, said McNealy, who noted cuts in this area may come on some "fringe" R and D programs.

Company executives did not say how the cuts might affect the company's channel efforts.

However, at least one solution provider said the cuts will be good news for the channel.

Hank Johnson, vice president of the Enterprise Partner Services group at Stonebridge Technologies, a Dallas-based Sun solution provider, said Sun is now in a position where it needs to depend on channel partners more than ever.

Stonebridge depends on MOCA for some support, and the solution provider has a support team with as much knowledge as Sun's internal people, said Johnson. "We don't need to count on support from Sun," he said. "Because of the seniority of my team and their relation with Sun people, I don't think the cuts will affect us. In fact, they could be a good move for the channel."

McNealy said that if he could redo the past three to four years, he would have relied more on the channel.

Going forward, he said Sun plans to lean more on the channel for installation, maintenance and lead generation. He said that 50 of the company's iForce Centers are being run by partners. "Sun is the most channel-friendly and partner-friendly of all our competitors," he said. "We think we can focus on product, and leave [much of the rest to the channel."

Johnson said McNealy's comments validate what Johnson has said for years. "Sun is not leveraging its channel," he said. "If the changes helps bring us more training and support, that's good for the channel. What I count on Sun for is continued development of killer hardware and software and SunOne apps."

For its first fiscal quarter of 2003, which ended September 29, Sun reported revenue of $2.7 billion, down 4 percent from the $2.9 billion reported for the same quarter last year.

The company lost $111 million, or 4 cents per share, vs. a loss of $180 million, or 6 cents per share, in the same period last year.

Due to the coming workforce reduction, Sun plans to take a $300 million restructuring charge during its second fiscal quarter.

One new product line--Star Office--proved surprisingly profitable for Sun last quarter, said McNealy. "We had a strong [first quarter for Star Office, and that's without any advertising," he said. "Just word of mouth. %85 Now this is not a strategic product, it's a profitable product."

In the server arena, the less-than-$100,000 space is the fastest-growing business for Sun, McNealy said. He said it will still take some time for customers to get tired of dealing with the "wheat fields" of low-end servers and swing back to high-end servers.

McNealy said his company does not like to offer future guidance, and instead focuses on what happened in the past six hours. He said he believes the company can be profitable in the second half of 2003, but if not, it will just go back and re-examine why. "We're being not even tactical, but reactive" going forward, he said.