Scott Mcnealy and Sun Microsystems

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Case Details:

Case Code : LDEN039
Case Length : 14 Pages
Period : 1984-2006
Pub Date : 2006
Teaching Note :Not Available
Organization : Sun Microsystems
Industry : Information Technology Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Scott (McNealy) is kind of like Moses. (He) led the world to the land of milk and honey, but he got left behind."

- Paul Saffo, director, Institute for the Future,¹ in 2004.²

"Sun has been a labor of love for me for since 1982 and it has been an honor and privilege to serve as its CEO for the past 22 years. We've helped shape the industry as it is today, and the opportunities before us are immense."²

- Scott McNealy, co-founder, chairman and former CEO of Sun Microsystems, in 2006.³

The End of an ERA

In April 2006, Scott McNealy (McNealy), the co-founder of Sun Microsystems, Inc. (Sun), announced that he would step down as the CEO of Sun in favor of the company's president and Chief Operating Officer (COO) Jonathan Schwartz (Schwartz). This was significant news for the IT industry, as McNealy had been at the helm of Sun for the last 22 years and had steered the company through a series of ups and downs in the industry.

The announcement was made on the same day that Sun announced a loss of $217 million⁴ for the quarter ended March 31st 2006, (taking the company's cumulative losses since 2002 to a staggering $4.5 billion).

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It was not a surprise as Wall Street had been calling for McNealy's resignation since the early 2000s when Sun first went into decline following the bursting of the dotcom and telecom bubbles in 2000 and 2001 respectively. Between fiscal years 2001 and 2005⁵, Sun saw its sales fall 39 percent and its share price plummet from a peak of $64 in mid 2002 to around $4 by 2005. Following the announcement of McNealy's exit, the stock gained 8.6 percent in extended trading and reached its highest level of the year at $5.41 (Refer Exhibit I for Sun's share prices).

McNealy said that the leadership change was a part of the company's succession planning efforts, and that he was looking forward to playing the role of 'chief evangelist' within Sun. However, some analysts felt that that the board had forced McNealy to step down under intense pressure from Wall Street over the company's poor financial performance.

McNealy was to continue as the chairman of Sun's board as well as chairman of the board of Sun Federal, Inc.⁶ McNealy was as well known in the IT industry for his visionary leadership of Sun in the 1980s and 1990s, as for his witty takes on competitors, especially Microsoft Corp. (Microsoft)...

He was one of the most controversial leaders in the industry, but even his harshest critics could not deny that he played a pivotal role in shaping the future of computing. It was not surprising therefore that when the leadership change at Sun was announced, analysts said it was 'the end of an era'in the history of the IT industry.

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1] The Institute for the Future is a non profit research organization based in California.

2] Jim Kerstetter, Peter Burrows, "Sun: A CEO's Last Stand," BusinessWeek, July 26, 2004.

3] "Jonathan Schwartz Named CEO of Sun Microsystems. Scott McNealy Continues as Chairman of the Board," http://no.sun.com, April 24, 2006.

4] Dollars ($) refer to US dollars in this case study.

5] At Sun, the fiscal year ends in June.

6] Sun Federal Inc. was a subsidiary of Sun, and directed the strategic opportunities for Sun's government businesses. The subsidiary existed mainly to cultivate and secure government contracts for Sun's products, solutions and technologies.