Online Extra: Scott McNealy Takes On His Critics

Their reasons for why we were doing so well [during the boom] were as wrong as their reasons for why we aren't doing well now

Corporate computing giant Sun Microsystems (SUNW ) may be struggling, but CEO Scott McNealy is as feisty as ever. In a pair of recent interviews with BusinessWeek Silicon Valley Correspondent Jim Kerstetter, McNealy sounded off on his April settlement with longtime nemesis Microsoft (MSFT ), the mistakes he has made since the tech bust, and why he believes pundits on Wall Street shouldn't be writing Sun's obituary. Following are edited excerpts of those interviews:

Q: I remember a cover story we ran three years ago that said the reason you were staying at Sun was to fight Microsoft. Why did you change your mind?


I don't know a better way to fight Microsoft than to be their second source...and allow the customer to have both of us on the short list. I don't know a better way to provide choice to the planet -- which is what it has been about. It hasn't been about killing Microsoft. It has been about preserving choice. And I think this goes a long way to preserving choice. Why is that so weird? I've been floored by people's reactions here.

Q: Well, you certainly used Microsoft over the years as your verbal whipping post.


You know, there was a lot of rhetoric. And by the way, when I said it, it was clever and quotable, so people remembered it. Let me tell you, there has been just as much bashing coming back from the previous and current CEOs of Microsoft -- they just aren't very funny.... It's just never called bashing because it's never clever.

Q: Obviously, the last few years have been pretty tough for Sun.


Yeah, we've gone from "X" billion to $7.5 billion in the bank. But you're right, we need to get the company growing. We know that, and we understand that. We have taken a lot of heat for protecting the product calendar going forward. I understand that, too. But I believe we're doing the right thing for our shareholder long term.

Q: Do you have any regrets about the last couple of years?


Well, yeah, I wish I could have called the top of the bubble. Sure, I have regrets. I think the biggest regret was not putting Solaris on Intel (INTC ) hardware six, seven years ago. I said that a bunch of times. We're doing that now. And I believe we will rebound with that big time. No question we caught [AMD's] Opteron at the right time, and we're six years late with Intel.

Q: I take it you don't buy the criticism that Sun is trying to do too much?


That's like telling Ford he's doing too much: Hey, you're trying to do tires and steering wheels! What are you thinking? And by the way, we're doing nothing but the car, if you will. We're not doing digital cameras, we're not doing the dealership group. We're not doing steel mills. We're not doing silicon. We're not doing IBM (IBM ) Global Services. We're not doing printers. We're not doing retail distribution.

We're fundamentally focused, much more so than any company I see out there. At some point, I've either got to listen to the open letters or sit down and think through this stuff. I've never seen as much conventional wisdom in our industry as I see right now. But if it was wisdom, I wouldn't call it conventional.

Q: Why did you wait to make cuts?


I wanted to get our product lines fixed, and we did. We focused entirely on raising the quality levels, the support levels, price performance.... We've got all that laid into place. Now we're driving consolidation, labs consolidation, facilities consolidation. We're taking our back office and putting it into the front office of our key partners, which they certainly like, and they can run their business on Sun as they go to market.

We just had a lot to do. The first year after the bubble, we took capacity out. The second couple of years, we've been working on getting the product lines organized. Quite honestly, we didn't execute all that well when we were growing 40% or 60% per year. What the analysts miss is we were making all of the mistakes four or five years ago, right at the peak of the bubble.

Q: Do you think customers are happy now?


I'll tell you what, I apologize to my shareholders that I went and got the customer happy first, got the channel happy, before I went off and got the return. And by the way, all the while we were generating massive cash flow from operations and other activities like the Microsoft deal, so it isn't like I've been [squandering] my shareholder assets.

Q: What do you say to critics who say, "Scott is just not listening to people, and he's calling too much of his own shots"?


That's what the CEO does. That's funny. You can't win right now. What I've learned is if you're not growing the business and making money, it doesn't matter what you do. There are more armchair quarterbacks than you can shake a stick at.

I used to laugh -- when we were doing so well, people were making up reasons why we were doing so well. Their reasons for why we were doing so well were as wrong as their reasons for why we aren't doing well now. I can't worry about that. I get elected by the shareholders to call the shots. I certainly can't be faulted for doing that.

Q: It seems you're most excited with your back to the wall.


You know, I don't mind getting down a couple of holes in a match-play game of golf. It gets me focused.

Q: Do you feel like you've been down a few holes?


Yeah, the last couple of years it felt like we've been playing into a headwind in Ireland. AOL (TWX ) was buying $100 million-plus per quarter from us, SBC's (SBC ) budget is down 30% or 40% of what it was. When you have big customers like that who are just not buying, that's some pretty significant headwind.

Throw into that we didn't execute as well as we could have with some of our product initiatives. And throw in a strategic mistake or two, like not getting this Microsoft deal done five years ago.... People say, "Why didn't you do this sooner?" Hey, you gotta wait until the stars line up.

I was chuckling with some CEOs during a CEO get-together when a CEO said, "I wish I could have three decisions over again." I said, "Only three?" We all laughed. I could come up with a top-10 list right away.

Q: Are you still the man to be running Sun?


I've learned, I'm now fairly experienced. Maybe it's time to get rid of me. But this company has a lot invested in training me and developing me. I got 20 years experience. I'm 49 years old. I'm in good shape. Healthy. Lot of energy. Lot of wisdom. A lot of relationships around the world. And I've seen a lot of the movies here. I'm pretty excited about what's going on.   

Q: Should people worry about you leaving Sun?


The shareholders, but that's my own personal view.

Q: So the answer is you're staying put.


You'll have to ask my board. I told them I'll serve at their pleasure.

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