McNealy dodges crisis talk

BERLIN--At Sun Microsystems' first European user conference, the inescapable issue for CEO Scott McNealy in meetings with customers and the media was Sun's financial situation and future prospects.

Sun came in for heavy criticism from Wall Street analysts following a $286 million loss on declining revenue in its most recent quarter. Questions are also being asked about the company's ability to compete in the low-end market against rivals such as Dell, with anecdotal evidence suggesting that customers in its key financial services market are increasingly turning to Hewlett-Packard and IBM.

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Yet, McNealy denies that there is a problem with Sun's strategy. At SunNetwork 2003 in Berlin this week, the company reinforced its vision of "network computing" and Java, and made product announcements around its Java Enterprise System and Java Desktop System low-cost software bundles, Advanced Micro Devices' Opteron chip, and a range of low-cost servers.

To inquiries about Sun's financial situation and the alarming revenue declines in its core business areas, McNealy's stock response was that the company has been "cash-flow positive in nine straight quarters, and (has) $5.5 billion in the bank."

Speaking to Silicon.com here, McNealy maintained that the only challenge facing Sun is getting its message across to customers, and that the public perception of his company is a result of the spin put out by rivals and analysts. Customers, he said, "can't find a hole" in Sun's strategy.

"Everybody's got an angle," he said. "IBM, HP and Dell are positioning Sun."

To mentions of a comeback or turnaround for Sun, McNealy says, "I don't think we ever went anywhere."

One recent big win for Sun was its deal for a half-million Linux desktops with the Chinese

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government-backed China Standard Software consortium. The agreement could run into a significant number of licenses for Sun's Java Desktop System.

McNealy expanded on comments Wednesday that Sun won't actually make much money on the deal: "We're going to make money on Java Desktop. We're not doing this for charity. Imagine if China had adopted Windows. Whose servers would they have used? We'll go in and sell servers, storage, Java Enterprise System, services and financing."

Despite this massive deal, major business take-up of Linux on the desktop elsewhere in the world is still something of a pipe dream for open-source advocates--as is getting a straight answer from McNealy to the assertion that few companies are actually switching their desktop environments from Microsoft to Linux.

"The farther you get from Redmond the better chance you've got," he said.

The challenge remains for McNealy and his colleagues to convince users that Sun's architecture and infrastructure is an affordable, long-term alternative to its rivals, especially at the low end of the market.

Andy McCue of Silicon.com reported from Berlin.