McNealy on message

Despite Sun's continued troubles, CEO Scott McNealy says the company is well positioned for the "participation age."

For Scott McNealy, fixing Sun Microsystems' problems is personal.

The chief executive has been working for years to put the server and software company back on an even keel after a period of explosive growth during the dot-com spending frenzy in the late 1990s. Although the server market once again is expanding, Sun's share of its sales continues to shrink, and the company's own revenue growth remains elusive.

But the 50-year-old McNealy said his Midwestern values require him not to leave the recovery to someone else. "I feel a huge sense of duty and loyalty," McNealy said. And though he's testy at times, he insists he enjoys the work: "It ain't a bad job."

In McNealy's opinion, much of Sun's problem is merely perception--compounded by flawed Generally Accepted Accounting Principles (GAAP) that draw attention away from the company's track record of cash generation.

To try to restore its position, Sun has many irons in the fire--among them, a newly open-source operating system, servers using Advanced Micro Devices' Opteron processors and a marketing campaign boasting of Sun's "sharing" values. McNealy discussed his views in a meeting at CNET's offices on Wednesday.

Q: What would you say is Sun's biggest problem today and its biggest strength?
McNealy: I just came back from an executive advisory committee meeting with all our top ISVs (independent software vendors) and partners. If you listen to them, their biggest beef coming in was they didn't know what our strategy was. The biggest beef coming out was, 'Why don't you tell somebody?' When you're making money, you get to position yourself. When you're losing money, your competitors position you. So nobody knows our story. We've got to do it directly and on our own.

We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat. I'll be happy to compare Solaris vs. Red Hat.
It doesn't help that GAAP is a random walk through irrelevancy right now and that the media's primary guideline for quoting financials is GAAP, when we're 16 straight years of cash-flow positive from operations. We cannot have lost billions of dollars in GAAP and somehow magically ended up with $7.5 billion in cash and no SEC investigations. We didn't cheat. We didn't steal that money. People actually felt very good about paying for the invoices we gave them. There's something wrong with the deferred tax asset impairments and all the rest of it, but because it's a GAAP profitability issue, we haven't been able to position ourselves.

What are our assets? We're one of three processor architectures--Intel-AMD being one, Sun and Fujitsu's Sparc being another and Power being another--that are going to survive. We have one of the two, maybe three operating systems that are going to survive: Windows, Solaris and maybe Red Hat. I'll be happy to compare Solaris vs. Red Hat.

We'd love to hear what your strategy is.
McNealy: I'll start with the vision. We believe we're moving out of the Ice Age, the Iron Age, the Industrial Age, the Information Age, to the participation age. You get on the Net and you do stuff. You IM (instant message), you blog, you take pictures, you publish, you podcast, you transact, you distance learn, you telemedicine. You are participating on the Internet, not just viewing stuff. We build the infrastructure that goes in the data center that facilitates the participation age. We build that big friggin' Webtone switch. It has security, directory, identity, privacy, storage, compute, the whole Web services stack. We build that infrastructure piece.

We have a mission, and that's make money and grow. That allows us to realize our cause, and that is to eliminate the digital divide. We believe our strategy, way more than a PC on everybody's desk or a mainframe everywhere, is the way to make that happen.

We have a strategy that's very different from everybody else's, and it's community development. The way we say that is with the S curve in all our new literature. It's not for Scott, it's not for Sun, it's for "share." We're grabbing that word and saying, of anybody, we own the word "share." We own that space.

During the last earnings call, you said you need more revenue growth. What do you do to make that happen?
McNealy: We have massively focused on customer satisfaction in terms of field satisfaction and hardware reliability. We've never had higher customer satisfaction with respect to how our product works, how it stays up out in the field. That was not true back in the (dot-com) bubble. We were just getting the stuff out the door as fast as we could, and that wasn't a good thing.

Second, three years ago I had a 900MHz UltraSparc III processor that didn't work very reliably. Now we have UltraSparc IV and IV+ coming later this year, UltraSparc IIIi and IIIi+ coming later this year, both of which double the per-socket performance. We've got Opteron dual-core shipping now, and Andy's new machines are due out in the next six months. (Editor's note: That's Sun co-founder Andy Bechtolsheim, chief designer of the company's Opteron servers.) We've got the APL (Advanced Product Line) Sparc mainframe chip jointly developed with

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