'There's Nobody Better than Sun at Reducing Complexity and Cost' - Scott McNealy

DATAQUEST: Sun appears to have several core competencies and adopted
positions threatened. The Linux and NT onslaught, the Intel server economics,
the bust of the dot-com segment, increasing interest in Microsoft's .NET
technologies. What is your way out? What’s your next grand vision?

Scott McNealy: Sun's core competency is solving complex network computing
problems for our customers. We do it with smart engineering, with radically
simple innovations and an unwavering commitment to open standards. We're good at
reducing complexity and cost - in fact, there's nobody better. Java is way ahead
of .Net in terms of technology, adoption, and widespread industry support. With
an unwavering long-term vision - The Network Is The Computer - Sun continues to
lead the industry toward simpler, faster, more cost-effective ways of using
network computing for business benefit. We are focusing our attention on
enabling customers to better create, deliver and access key business services.
Strategic initiatives such as Project Orion, N1 and Throughput Computing will
allow us to leapfrog the competition in both the vision and market-share wars.

Then what is threatening Sun?

The high-tech business is highly competitive - always has been - so it's
important to maintain a healthy respect for your competitors. Which we do. After
all, they're much bigger than we are. But we've done very well because we're a
forward-thinking company. As hockey legend Wayne Gretzky used to say,
"Don't skate to the puck; skate to where it's going."

Many say Web services are the next inflexion point for the tech industry. How
will it shift the balance of power in the industry? What is Sun’s positioning?
The success of Web services ultimately depends on open, royalty-free
standards--the same driving force that propelled the Internet to become an
indispensable global business tool. By agreeing on standards, we can make the
market bigger for all players.

Sun software is, in essence, a service-delivery platform. It includes all the
key infrastructure components --directory, identity management, security,
messaging, calendar, app server, portal--that make Web services possible. We do
the integration work so our customers don't have to, but we also ensure, through
strict adherence to open standards, that our software system is "integratable,"
meaning it works with standards-based products from other vendors. We think
that's a pretty compelling value proposition.

Sun's attempting to target the desktop market, with projects Mercury and Mad
Hatter. Were they really required? Or is it just an anti-Microsoft move?

There are now at least 3.4 million desktops running Linux and other free, or
virtually free, software such as the Gnome windowing environment, the Mozilla
browser, the Evolution mail program, and the StarOffice productivity suite. In
fact, a report I saw recently predicts 25 percent growth for Linux desktops this
year.

At Sun, as you know, we've announced an open desktop client code-named Mad
Hatter, and early access on those systems will begin this quarter. Customers are
showing a lot of interest, especially those running help desks and call centers,
where they don't need a million features that go undiscovered and unused -- and
they certainly don't need the expense of a Windows desktop.

Aside from the desktop, we have also earned widespread support in the
wireless handheld market. Today, more than 75 million Java devices are available
and over 34 operators worldwide have enabled their subscribers with Java
services. Consumers all over the world can choose from among 100 Java handset
models.

How is Sun's R&D investment distributed?

We're currently budgeting about 15% of revenues for R&D, but we don't
generally break it down any further, for competitive reasons.

How long do you think a vertically-integrated Sun can pull on? Your own
processors, own OS, own software–if ‘it’s not invented here’, you don’t
look at it..?

Being a systems company gives us a distinct advantage in that we're able to
tune the various hardware and software elements to work together more
efficiently. I'll give you an example of what I mean: If we just made
microprocessors, we'd probably be focused on megahertz like our competitors.
Instead, we're focused on throughput -- the amount of actual work a system gets
done. That is less dependent on the processor than most people think. Processor
speeds have been doubling about every two years, but memory speed has doubled
every six years -- a serious mismatch. We see that -- and are addressing it --
because we're a systems company.

How does Sun plan to quiet its critics in the short-term?

Sun continues to lead the world in UNIX server shipments and revenue -- a
position we've held, on an annual basis, since 1998. The latest numbers from IDC
show we've gained marketshare in both shipments and revenues. Sun had 32.3% UNIX
server revenue marketshare for CY02 and grew UNIX server revenue marketshare by
1.3 points. Our UNIX server shipment marketshare was 44.5% and grew UNIX server
shipment marketshare 4.5 points for CY02. We even gained marketshare in the
entry-level servers costing under $100,000.

We're executing well -- holding down costs while bringing to market the most
compelling product family in our history and extending our reach to a wide range
of industries. Watch us and evaluate us on the quality, innovation, and
price/performance we bring to market.

Interviewed by Easwaradas Satyan in Bombay, over email.