Jonathan Schwartz, the eloquent, pony-tailed COO of Sun Microsystems was promoted to CEO as the company's founder, Scott McNealy, stepped down this Monday after 22 years. The tech veteran will remain as chairman but even with a new leader at the helm, there is little evidence that Sun will deviate from its slow path to profitability.
Sun Microsystems has tried to reinvent and refine its operations since the dot-com bust of 2000 but struggles to churn out profit. While other large computer hardware manufacturers at that time, such as Dell, IBM, and Hewlett Packard, all adopted low cost and standardized technologies, Sun continued to pour in over $2B into research and development.
McNealy and board members felt that expensive investment and innovation would set Sun apart form competitors and give it the edge needed to weather the storm. It was set apart, but not in a way it intended â€“ over the course of the next half-decade its stock plunged from a high of $60 per share to just above $3.
Calls from previous Sun president Ed Zander, now CEO of Motorola Inc., to reduce costs largely went unheeded as McNealy insisted on taking the company in his own direction. It is unclear if now with Schwartz as CEO, the company will tread new ground.
McNealy has made a reputation as one of the computer industry's more charismatic and outspoken leaders. With him looking over the shoulder of the new CEO, the company's direction may be more difficult to change. Both he and Schwartz insisted in a conference call with analysts on Monday that Sun was not changing course saying, â€œJonathan and I are highly aligned on that, itâ€™s crystal clear.â€
Following the same direction may not be devastating for Sun. However it may make for a slow turnaround. Though shares have dropped and revenue has been declining, Sun has been able to cast some hopeful rays. Sales grew 21% and margins have increased to 43% in the latest quarter.
â€œI wasnâ€™t going to hand it over post-bubble, when it was deteriorating,â€ McNealy said, adding that the company is once again growing.
If Schwartz can continue this momentum, analysts expect a profit in fiscal 2007. He is already ensuring that the company is â€œaligned for growth,â€ vowing to scrutinize Sunâ€™s huge R&D budget over the next 90 days and prune inefficiencies.
Like his predecessor, Schwartz assured that â€œthereâ€™s no plan whatsoeverâ€ for sweeping job cuts that some investors are pushing for - in line with McNealyâ€™s own philosophy through Sunâ€™s decline in recent years.
â€œYouâ€™re going to find us way more alike because we both think weâ€™re on the right trackâ€ McNealy said. Whether Schwartz holds on to McNealy's legacy, or ends up implementing radical change, only time will tell. But with the momentum already in place â€“ and shares shooting up 7 percent on news of the appointment - perhaps radical change isnâ€™t needed to keep Sun in orbit.