Where Is the House McNealy Built?

Executive departures continue to roil Sun Microsystems Inc. , as the company announced its president and chief operating
officer, Edward Zander, would retire this summer. Chairman and CEO Scott
McNealy will take over Zander’s duties on July 1.

The surprise departure of Zander follows the announced retirements last month of longtime Sun executives
Michael Lehman, Larry Hambly, and John Shoemaker.

In a statement, Zander, 55, said he had been considering a departure over
the past year, and concluded that he is “leaving Sun on a high note and in
the hands of a new generation of leaders.”

“Over the last 15 years, Ed has worked tirelessly to lead Sun through
several transformations and to the forefront of the computer industry,”
McNealy said in a statement. “I want to thank Ed for his unparalleled
commitment to our customers, shareholders and employees.”

Sun said it does not plan to name a replacement for Zander, who will consult
for the company for the rest of the year.

With Zander gone, Sun has lost four executives in the past two weeks,
leaving McNealy without key lieutenants who guided Sun’s rise to prominence.
Lehman joined Sun early on, in 1987, eventually taking the reins of the
company’s financial operations as CFO in 1998.

Zander and Lehman were so central to Sun’s leadership ranks that they hosted
the company’s first-quarter conference call with analysts last month, while
McNealy was on vacation.

“You don’t replace someone like Ed very quickly,” Goldman Sachs analyst
Laura Conigliaro said on CNBC. “It’s something that people grow into.”

Zander served in his position since January 1998, after a stint running
Sun’s network computing systems organization. He joined the company in
October 1987 as a VP of corporate marketing.

Hambly came to Sun in 1983, as one of its first 100 employees, to build the
company’s sales force in the West. He quickly climbed the ranks of Sun
execs, most recently heading the company’s enterprise services division.
Shoemaker, the head of computer systems and a 12-year Sun veteran, announced
his retirement on April 16. The departures will leave McNealy without much
of its day-to-day leadership.

On top of the recent front-office instability, Sun has been dealing with a
host of problems, chiefly the collapse in business IT spending and an
intensely competitive server market. Further, some analysts feel Sun has a
tough road ahead.

Precursor Group analyst Bill Whyman recently warned that Sun was falling
behind IBM and Microsoft in Web services, while adopting a muddled approach
to Linux. “It’s never a good sign when you see senior management leave,” he
said “Clearly Sun has a lot of core strategic issues they have to solve
sooner rather than later.”

“I think it means people see the Sun story in the next year will be
challenging,” said Shebly Seyrafi, an analyst with A.G. Edwards & Sons.

To deal with slumping demand, Sun recently announced plans to cut 1,000 jobs
from its 39,000 workforce over the next six to nine months. In the first
quarter, the company reported a net loss of $37 million on $3.1 billion in
revenues. The company said it would return to profitability this quarter
after three straight quarters of losses.

The news of Zander’s impending departure sent Sun’s shares down 12 percent
this morning to $7.19, the lowest level the stock has traded in the past
year.

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