Make or Break Time for Sun - Page 2

Page 2 of 2

Schwartz hardly has Yahoo CEO Jerry Yang's problems, but while he doesn't have a powerful investor and the CEO of a giant software company out to fire him, he nonetheless may be running out of time.

"It's been a couple of years -- I don't think you can wait much longer than that and say we'll give him more time," Farina said. "Something has to happen. Either he takes decisive action or investors will force them to take more decisive action."

What to do next

What that decisive action might be is open to debate. There have been rumors within the investor community that Sun is considering selling off its StorageTek unit, which it bought in 2005. But Hill thinks that would be a big mistake.

"The problem is when you sell your product, you do much better if you can sell both servers and storage," he said. "A company needs to have a full story, even if you compete with EMC and lose some business. You can't just be a server company.

"Dell realized that and acquired EqualLogic," he added. "If Sun stays only in servers, they run the risk that if they go south in that market, that's all they've got."

O'Grady thinks Sun needs to push heavily into new markets because its dominance over Internet servers, where Sun reigned supreme in the 1990s, has gone away. The company that once used to advertise that it was "the dot in dotcom" put a lot of eggs in the Internet basket and failed to grab significant presence in other industries.

"Sun's big problem is basically getting visibility and getting footprint," he said. "Infrastructure used to be built on SPARC and Solaris, but a lot of that has shifted to LAMP [Linux, Apache, MySQL, PHP]. So a lot of startup workloads that went to Sun went away.

"Larger firms had enterprise accounts to fall back on, but Sun didn't have the same breadth of enterprise accounts when the dotcom crash happened."

Farina believes Sun needs to be more aggressive in its restructuring. Schwartz resisted any layoffs strenuously before finally making the cuts, but even those have proven relatively minor, Farina said. The company also still spends $2 billion a year on R&D -- and you can't spend R&D money like you are Intel unless you have Intel's level of income, which Sun does not.

"I credit Sun for not wanting to make big changes and cut staff, but I really question it as something they need to do," he said. "That's a very altruistic kind of position to take, but that's not necessarily the best thing for the company. It's put [Schwartz] in a bad spot."

Meanwhile, O'Grady just wants some patience for Schwartz to prove his strategy.

"If he had taken the helm of a company in great health and sent it downward, that would be one thing," he said. "Yeah, they are not where they want to be, but the financial ship has been righted and the product side is in better shape than they were a few years.

"But at the end of the day they are going to be judged by share price, and until he turns that around, he will be judged by questions like this."