Determined as ever, Sun Microsystems Chairman, President and CEO Scott McNealy continues his crusade to turn around Sun. In the last quarter, the company reported a $125 million loss on sales of $2.89 billion, which represents a 13.9 percent increase in revenue over the prior quarter. Sun, Santa Clara, Calif., also launched a series of new product initiatives and actually managed to increase gross margins by 1.7 percent. In an interview with CRN Editor-In-Chief Michael Vizard, McNealy provides an update on Sun's key initiatives for 2004 and a few well-aimed shots at IBM, Dell and Hewlett-Packard.
CRN: In 2003, you made a major commitment to the channel. How are your channel efforts progressing?
McNealy: I know the resellers are very happy. I'm back in charge now. We are not going to grow the direct-sales force. We're going to leverage our partners and drive revenue through the channel. That's one of the reasons our low end is growing and we're able to drive leads. Our Java Enterprise System [JES] for 1,000 users and under is something our sales force can't touch so we're giving the channel some exclusivity. That's a new thing for Sun. And someday, we're going to launch a product that is exclusively available through the channel. In the past, the more successful we got, the more we got talked into hiring head count to go direct. There was a statement made inside of Sun once that said our biggest expense item was discounts to the channel. And that was just wrong. It was a wrong-sided view. It took no account for the value provided by our partners and all the opportunity costs we would incur in bringing all those people on board Sun. So it wasn't that I ever lost my channel religion, it's more like I didn't go to church enough.
CRN: There's an old adage that says, 'Customers date their hardware vendors and marry their software vendors.' With JES, you're tightly bundling software with the hardware system. How effective has that sales effort been?
McNealy: We don't really have to change the purchasing culture. It's changing automatically. The good news is that more computing cycles are being consumed by service providers. Those types of customers want to avoid heterogeneity and inconsistency. We don't have to change the behavior of those types of customers.
CRN: So is it your argument that customers should do less customization of systems?
McNealy: That's one of the vectors driving people to the legions of IBM Global Services folks. Once you're custom, you're custom. Once you're screwed, you're screwed. You're never going to get a competitive advantage by doing Oracle applications better than the next crew. We're all just making huge mistakes that way. The only way to win is by running Oracle applications cheaper than the next guy.
CRN: How difficult is it to compete with Dell using the bundled JES model?
McNealy: When a customer buys Dell, you have to remember they then have to pay $1,500 to Red Hat and then pay money to Veritas and so on. They wind up with a $3,000 server with about $12,000 worth of software on it. I'm selling the equivalent of that $15,000 system for $6,000. For us, it's 100 percent gross margin on the software and for the customer it's a too-good-to-be-true Happy Meal.
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