McNealy steps down at Sun

Jonathan Schwartz takes over as CEO from Scott McNealy, who stays on as chairman as the company grapples with profitability.

Sun Microsystems co-founder Scott McNealy has stepped down as chief executive, and has been replaced by President Jonathan Schwartz, the company said Monday.

McNealy, who will stay on as chairman, was one of four co-founders of Sun 24 years ago and has been CEO for the last 22 of those. Since then, he has been a strong and often contrarian voice for change in the computing industry, but in recent years his vision hasn't translated into financial success.

"Jonathan has risen to the top of the class, and he is ready," McNealy, 51, said in a conference call. The move was planned, he added: "It's part of our ongoing succession process we've been working on since my days at the (General Electric) board."

Scott McNealy Scott McNealy

Schwartz, 40, said the main difference under his leadership will be a greater emphasis on "growth and financial performance, now that the technological performance and customer performance is back at a level we think is reasonable," speaking on the conference call.

"My team is going to be more focused on growing the business, finding new customers, seeking the new adoptions, finding the new opportunities around the world," Schwartz said.

"We're not planning on changing the strategy," he added.

The change makes sense, said Illuminata analyst Jonathan Eunice, who likened Sun's move to a sports team's offensive coordinator becoming head coach. "Jonathan's been the one calling the plays for some quarters now," he said.

McNealy will continue his active role at Sun. "In the next phase, he will be more actively involved with the customer base than he previously was," Schwartz said.

Schwartz now is CEO and president, and the chief operating officer role has been phased out. "I have no intention of having a COO," Schwartz said in an interview.

, with flames fanned by the return of Chief Financial Officer Mike Lehman and his declaration that he would "take a fresh look at everything."

More changes are coming as Lehman, Schwartz and McNealy evaluate Sun's options for the next fiscal year, which begins in July. But investors clamoring for major cost cuts through extensive layoffs will likely be disappointed, Schwartz said.

"The sentiment is that there needs to be, or will be, a significant 20 percent or plus work-force reduction," Toni Sacconaghi, an analyst at Sanford C. Bernstein, said on the conference call.

Schwartz's response was: "There's no plan whatever...of the cut you referenced."

McNealy said he'll be actively engaged in Santa Clara, Calif.-based Sun, including in his new role as chairman of its Sun Federal subsidiary, a role previously held by Clark Masters. And he looks fondly at his role in the industry.

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"Sun has been a labor of love for me for since 1982, and it has been an honor and privilege to serve as its CEO for the past 22 years. We've helped shape the industry as it is today, and the opportunities before us are immense. I look forward to a smooth transition and to working with Jonathan on company strategy in my continued role as chairman," McNealy said in a statement.

"Since joining Sun in 1996, Jonathan has been a driving force within the company," McNealy said, pointing to streamlining and major acquisitions.

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