A Jolt of Java
Sun Microsystems' boy wonder grows up and even makes peace with Microsoft
Scott McNealy doesn't try to sugarcoat his company's past. "People thought we were nowhere three years ago," says the longtime CEO and cofounder of Sun Microsystems, one of Silicon Valley's biggest producers of computer hardware and software. Worse, he admits, they weren't entirely wrong.
The dot-com bubble was as good to Sun as it was to anyone in high tech. The company prospered step for step with bubble-era start-ups by selling many of the servers--high-speed computers used to store application and data files--and much of the software that powered the Internet boom. In 1996, more than a third of World Wide Web servers were Sun computers. The company's market cap jumped from $15 billion in 1997 to $121 billion two years later. At its peak, Sun salespeople found they didn't even have to sell; they could just sit by the phone and take orders. The business model was simple: Roll out expensive hardware--including some servers starting at $500,000--and watch the billions roll in. "We were all drinking the Kool-Aid," McNealy says.
Then, of course, the music stopped. The dot coms disappeared, and the bottom fell out of the market for high-end servers: 50 percent of Sun's sales vanished almost overnight. By the end of 2002, the company had shed $111 billion in value. Lower-priced servers from Dell and Hewlett-Packard flooded the market, and Sun's business suddenly looked dangerously obsolete. Round after round of layoffs came and went. There was talk of a buyout. In 2003, one Wall Street analyst took the unusual step of writing an open letter to the company's board questioning McNealy's leadership. Sun's stock had tumbled from a high of $65 to closer to $4, where it has been flatlining ever since.
But McNealy, a fast-talking, joke-cracking, former hockey player from outside Detroit, whose 21-year tenure as the head of Sun is the second-longest run of a CEO in Silicon Valley behind Oracle's Larry Ellison, did not resign. And three years after his company seemed dead in the water, Sun's CEO is starting to whistle a merry tune once again. His business may not be sexy--buried, as it is, in the dark corners of corporate data centers. But his company is finally back on offense, rolling out a series of next-generation chips and servers, forming new alliances, and, controversially, open-sourcing much of its enterprise software--that is, offering access to its products free of charge. "Our image is moving from clam-digger to Armani suit,"blusters McNealy in his usual folksy fashion. As Internet use climbs and Silicon Valley darlings like Google, eBay, and Yahoo! continue to buy up the company's products, some analysts are starting to wonder if there may be light at the end of the tunnel for Sun and McNealy--and, perhaps, early signs of renaissance for one of high tech's still-battered markets.
That McNealy would be in the vanguard of a tech comeback may come as no surprise. He has, after all, been one of the industry's most innovative--and boisterous--characters ever since he was named CEO, at 29, of his fledgling start-up in 1984. Though he had almost no prior experience in computers (he took a night course in basic electronics so he could understand his cofounders), with McNealy at the helm, Sun became the fastest-growing company in the United States between 1985 and 1989, dominating the workstation boom and going head to head with Microsoft and Apple in the race for computing's future. Sun's servers were among the most reliable and powerful on the market. And while McNealy earned a reputation for his sharp tongue, he also seemed to put his money where his mouth was: He and his wife named their first of four children Maverick and their dog Network. In 1995, when Sun engineers rolled out Java, a universal computer language that enabled all networked computers to communicate with one another and share applications, McNealy hitched his company's fortunes to the Internet. His long-held mantra--"the network is the computer"--seemed to anticipate the Web's interconnected computing environment. And many industry watchers, during the boom at least, hung on his every word.
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