Sun Shifts Top Brass as Losses Mount

Sun Microsystems Thursday announced additional
restructuring of its executive teams as the company continues to suffer from
12 straight quarters of financial losses.

The Santa Clara, Calif.-based network computer maker, which reported its
fiscal 2004 third quarter, said that it has completed its acquisition
of Kealia, a privately held company based in Palo Alto, Calif. The deal
brings Kealia co-founder Andy Bechtolsheim back to Sun as Chief Architect.
Bechtolsheim was employee No. 1 at Sun and helped found the company along
with Bill Joy, include Vinod Khosla and Sun’s current chairman, president
and CEO Scott McNeally.

Sun also announced the departure of Mark Tolliver, chief marketing and
strategy officer, and Neil Knox, executive vice president, volume systems
products. The two men join Rich Green, who led Sun’s software tools
division, as executives that have left the company to pursue other interests
in the last two weeks. The fate of Clark Masters, Sun’s executive vice
president of Enterprise Systems, is still undecided, according to newly
appointed chief operating officer Jonathan Schwartz.

“We’re in discussions with Clark, and he is still considering a lot of
internal options here,” Schwartz said during a conference call with
investors. “We’re looking both internally and externally at who are the
right folks for Sun, and who can bring us forward.”

The team now consists of John Loiacono, who is replacing Schwartz as
executive vice president of software; David Yen, who will run Sun’s
microprocessors, enterprise systems and SPARC-based volume systems under a
new Throughput Systems organization; John Fowler, who will flesh out Sun’s
hardware relationship with Intel and AMD and hold dual roles as Network
Systems’ acting executive vice president and lead technology officer for
Schwartz; Anil Gadre, who has been named interim chief marketing officer;
and Brian Sutphin, who takes the reigns as vice president of corporate

Other members of Schwartz’s executive team include Mark Canepa, executive
vice president, storage; Robyn Denholm, vice president, finance, and
corporate controller; Michael Dillon, senior vice president, general counsel
and corporate secretary; Bill MacGowan, senior vice president, human
resources; Marissa Peterson, executive vice president, customer advocacy,
network services and worldwide operations; and Robert Youngjohns, executive
vice president, global sales operations.

The management changes are a precursor to the elimination of 3,300 Sun
employees — or 9 percent of the company– in the next three months as part
of a corporate restructuring and $1.9 billion settlement with Microsoft .

Still, the motivation for change continues to be Sun’s lack of cash flow,
which is evident in the company’s latest financial statement.

The company reported a net loss of $760 million, or 23 cents a share,
compared with a year-ago profit of $4 million, or nil cents a share. Sun
also reported that its revenue fell to $2.65 billion from $2.79 billion. The company
said the numbers do not reflect any of the agreement with Microsoft; its hardware lines have been losing out in the sales race to the likes
of IBM, HP and Dell,
while its Solaris-based software has been trumped by Windows-based systems
and a growing number of Linux deployments.

“At this point, if you’re Sun, you want to jumpstart your initiative,”
Yankee Group analyst Laura Didio told “They have
some bright spots with StarOffice, but they are watching their Solaris
hardware base lose out to Linux and inexpensive Linux hardware and server
operating system deployment.”

Still, McNealy bragged that his product line is stronger now than in the
last 10 years and that continued investment in Sun’s UltraSPARC IV
processors along with volume servers running Intel and AMD chips would play
a big part his prediction for a rebound.

“There is lots for us to prove all the way around, but our success
is more than just our balance sheet,” McNealy said.

Other areas McNealy suggested would be big market winners include Sun’s
Java Enterprise System and its recurring profit from an annual per-employee
licensing plan. The company’s Java Desktop System also is expected to put
more cash in Sun’s coffers, according to McNealy, especially now that
Wal-Mart has begun selling inexpensive desktop models
through its online channels.

The CEO also pointed to Sun’s increasing business in Professional
Services, Managed Services and Preventive Services, a system analysis
program that the company said it would expand further as the year went on.

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