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Schwartz stays Sunny despite lay-offs

Sun CEO's suit and tie policy

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Despite announcing a plan to shave up to $590m in annual costs with as many as 5,000 job cuts, Sun's new CEO Jonathan Schwartz remains upbeat about Sun Microsystems, the troubled server and software company, which has been in decline since the dotcom boom and bust of 2000.

Schwartz (40) recently took over from Scott McNealy (51) after a 22-year reign.

"The demand for network infrastructure is going to follow the demand for network services," he told a group of European reporters in Silicon Valley last week.

"Unlike the oil industry, which has to worry about ethanol, hybrids and fuel cells, I don't have to be concerned about another internet that is going to swipe this one away."

With his ponytail, soft voice and intellectual looks, Sun's new chief executive bears little resemblance to his brash predecessor, who regularly delivered scathing sound bites about rival Microsoft. Schwartz, who joined Sun in 1996 when it acquired a small NeXT software house Lighthouse Design, is one of the few Silicon Valley CEOs who maintains his own blog, favours suit and tie over jeans and allegedly hates golf.

Schwartz's major restructuring effort recently was applauded by Wall Street analysts, who believed that Sun moved too slowly in bringing costs in line with its falling revenue.

"We needed to bring costs down," he said last week. "However, we already have radically improved gross margins over the past few years; they are above four percentage points. In the last quarter, we grew in the toughest geography in the world, which is the US. I am not worried about the revenue prospects; we just have to make sure that our position is in front of that opportunity, not behind it."

He acknowledged that Sun Microsystems is increasingly operating in a "commodities market", but emphasised that this is where the money is. "Those that can differentiate in terms of R&D and innovation can in fact make a lot of money. And I'm certain Sun Microsystems is one of them. We believe our server product offering has never been stronger. And we are still driving the open source community with Solaris and Java. If you are in my business, revenue is a lagging indicator of developer adoption."

Schwartz also has plans to shake up its business with its partners. In March, Sun sent an open letter to HP CEO Mark Hurd, trying to engage the computer maker in a dialogue around converging their Unix efforts.

"If you look at HP's newest blade offerings, they don't run HP UX anymore," he said. "They now proudly talk about using Solaris on HP blades. There are only three operating systems in the marketplace that are growing: Windows, Red Hat and Solaris. In the last past months we distributed 5 million Solaris licenses; ask IBM or HP how many they distributed."

Another area of growth for Sun is storage. Last year, Sun Microsystems acquired StorageTek for $4.1bn in cash, Sun's biggest acquisition. "It gives us a variety of things we didn't have before. However, it is also an old fashioned business that is run inefficiently, which we need to change. But we are not cutting R&D on StorageTek. The company still holds great promise: it archives almost a third of the world's data. Here's an interesting statistic: it is still faster to ship a petabyte of data from San Francisco to Sydney in Australia by boat than sending the same amount through the internet."

Which is why he believes that the value of what Sun is creating will be rising. "The barriers to enter the market are going up, it will take a lot of effort for anyone to go into operating or storage systems. And those that are trying to differentiate solely on the basis of price reduction will realise that it is not going to fly." ®

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