Sun loses its lustre with R&D cutbacks

When Sun Microsystems’ long-standing CEO Scott McNealy announced in April that he was stepping down from that position and taking a less active part in running the company, shares in Sun rose more than 6% in after-hours trading on Wall Street.

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By  Peter Branton Published  June 11, 2006

|~|commentscotsunbody.jpg|~|McNealy’s standing down as Sun CEO led to a few other changes.|~|When Sun Microsystems’ long-standing CEO Scott McNealy announced in April that he was stepping down from that position and taking a less active part in running the company, shares in Sun rose more than 6% in after-hours trading on Wall Street. That wasn’t because investors had taken a personal dislike to McNealy — although some might have done — but was simply a reflection of the fact that his successor, Jonathan Schwartz, was widely expected to make the job cuts that the market wanted. While Schwartz had initially claimed that “there’s no plan whatever” to make any such job cuts, last month he approved a growth plan which will see the company do precisely that: the company is going to make a 11-13% reduction in its 37,500 worldwide headcount over the next six months. This is actually less than some investors had called for, with some wanting to see as much a quarter of Sun’s workface removed from the books, but it is certainly more than McNealy would have wanted to remove. McNealy had made himself unpopular with Wall Street analysts by his reluctance to cut jobs, especially the engineering jobs he thought vital to the long-term success of the company. Although he was an economics major and Harvard MBA, McNealy famously identified with the engineers at his company — the people who helped build Sun’s formidable reputation as one of the most innovative companies in the industry, having created the Java software development platform, amongst other achievements. How many such achievements will the company make now? Schwartz has specifically targeted a reduction in research and development (R&D) as being crucial to reducing expenditure, promising that it will become more efficient. For instance, mooted plans include using its Solaris operating system in a wider range of its products, replacing custom-built OS’ and a “common pool” of R&D talent. “We’ve worked hard to reinvent the entirety of Sun’s product line, from software to systems, storage and services. It’s on that rebuilt foundation, that we are reinventing our business model on a far simpler base and focusing our energies on the automation, energy efficiency and network innovation at the heart of our technology leadership,” Schwartz said in the statement announcing the cuts. In a webcast explaining the move, he went further: “Our industry is littered with companies that try to be all things to all people,” he said. “That’s not Sun.” It certainly doesn’t look like it will be the Sun of the future, but it will be a shame if this move leads to Sun losing all the things that have made it what it is now. ||**||

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