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Wired: McNealy's Last Stand

Jun 14, 2003, 07:00 (17 Talkback[s])
(Other stories by Gary Rivlin)

"Stiff-legged and hunched over, Scott McNealy limps slowly to a wheat-colored couch in the corner of his office. His eyes are bleary, and a wrinkly wattle is forming about his neck. In his semi-exhausted state, McNealy looks almost frail. There was a time not that long ago when the smash-mouthed, overamped CEO of Sun Microsystems would have been shuffling along like this because of a nasty collision during a no-holds-barred intramural hockey game. Instead, the culprit is a long international flight home two days ago following a week-and-a-half swing through Asia. 'I'm getting old,' groans the 48-year-old McNealy.

"Age may be one explanation for his woes, but there are others: his company's stock price, slumping sales, and customer defections, not to mention threats posed by a burgeoning list of competitors. Share prices of nearly every publicly traded Silicon Valley firm have plummeted since 2000, of course, but few have fallen as precipitously as Sun's. As of early May, its stock, down 94 percent from a 2000 high, was trading pretty much exactly where it was in 1996, when the computer maker was in the early arc of its dotcom-fueled rocket ride. In its heyday, Sun sometimes sold as much as $5 billion worth of computer equipment, software, and services in a single quarter, but over the past few years quarterly revenue has dropped to nearly half that. Revenue fell an additional 10 percent in the first three months of 2003, marking the eighth consecutive quarterly decline.

"The problem is that Sun specializes in the kind of top-end systems--super-sleek servers running on scores of expensive, high-performance chips yoked together by Solaris, Sun's well-regarded operating system--that have fallen out of favor. Morgan Stanley, Credit Suisse First Boston, Pixar, and the E*Trade Group are among the major companies that have swapped out Sun machines in recent months for so-called Lintel boxes: cheaper servers running the Linux operating system on Intel-compatible microprocessors. Even Google, headed up by former Sun star Eric Schmidt, uses Lintel machines to run one of the world's busiest Web sites. Of the 20 Wall Street analysts who cover Sun, only one rates the company a buy. This month, Wired drops Sun from its list of the 40 most forward-looking companies, a group it has been part of since the list debuted in 1998..."

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