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Interview: Sun Microsystems CEO Scott McNealy

Sun Chairman and CEO Scott McNealy spoke before Sun's annual partner conference Monday, at a time when the vendor has just signed a historic pact with Microsoft, made upper-level management and restructuring changes, and seen several key executives depart the company. McNealy and his cohorts at Sun, Santa Clara, Calif., also are under the most intense pressure yet from Wall Street and partners to turn a profit, after announcing another quarter of declining sales -- the company's 12th consecutive -- when it reported fiscal 2004 third-quarter earnings last week. At the Sun iForce Partner Summit in San Diego, McNealy fielded questions from CRN Senior Editor Elizabeth Montalbano about how Sun plans to grow its business in the midst of the current company environment, and how Sun plans to leverage its partners in the process.

CRN: What is the biggest message Sun is sending to partners at the conference this year?
McNealy: I just think we've actually been following up on what we committed to a year ago. We're moving a higher percentage of our business to the partners. I was just talking to [Sun distributor] MOCA and they've had eight straight quarters of sequential growth in revenue. It's a very strong commitment that the way we're going to grow this business is through the partner model, not through hiring 4,000 to 5,000 employees in the field per quarter like we were doing at the peak of the bubble.

CRN: Do you have percentages for how much you will grow the business through the channel?
McNealy: We're going to continue to go direct to the big service providers and the OEMs. But we're going to move a greater percentage of the business to the channel. I don't want to get specific because then you're going to hold me to it.

CRN: Did you look outside of the company for the president and COO position or was [former Software EVP] Jonathan Schwartz just the natural choice for the job?

McNealy: I look outside the company every day. We have a very extensive and well-thought-out and well-considered and tightly managed executive review process with a depth charge on every job inside the company. So at any step along the way we're ready to move. You obviously heard about the tragedy at McDonald's (whose CEO died suddenly Monday) this morning, but they were ready to step in immediately and I think every company has to be ready to step in as needs change or as personnel changes to go step into those new [roles]. We have a very deep bench at Sun Microsystems, and we feel pretty good about that. We've worked hard to go do that.

CRN: Jonathan Schwartz talks a lot about more services-based pricing where Sun will give hardware away for free in exchange for subscriptions to certain services. On Sun's third-quarter earnings call last week, analysts seemed skeptical about how long it might take to derive revenue from subscription pricing, which you've already started with your Java software. Can you shed some light on how Sun will derive revenue from more than just hardware, which is still where a lot of it is coming from?
McNealy: The right and interesting model is ACS [a Sun partner] in Dallas [that] has a joint offering with Sun that is based around Sun power units. What they do is use their floor tiles and they staff the data center. We put our infrastructure in there, and by the way it's Intel, AMD and/or Sparc, it's Linux and/or Solaris, and it's [Java Enterprise System] and/or other components... . It's our equipment, Sun owns it, Sun operates it, in an ACS-managed data center, and we've created the Sun Power Units. We went in and we filled that first data center we set up on our nickel, on the ACS and Sun nickel. Three customers signed up and filled the thing up. So now we're building a second one and I just signed off on a capital acquisition request for more capital to go into the second one. I've got a list of about a dozen customers that we're bidding out Sun Power Units to in a true utility computing model. This is reselling Sun Power Units.

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