<img alt="dcsimg" id="dcsimg" width="1" height="1" src="//www.qsstats.com/dcs8krshw00000cpvecvkz0uc_4g4q/njs.gif?dcsuri=/index.php/c/a/Business-Intelligence/McNealy-Innovation-Matters-But-So-Does-Profitability&amp;WT.js=No&amp;WT.tv=10.4.1&amp;dcssip=www.baselinemag.com&amp;WT.qs_dlk=XlZmWBvq67DspOieUcfoVAAAAAU&amp;">

McNealy: Innovation Matters, But So Does Profitability

By Tom Steinert-Threlkeld Print this article Print

The founder and chief executive of Sun Microsystems says that he will remain committed to a "controversial strategy" in the computing industry that says, good research and development can embody in hardware what other companies deliver with ar

BROOMFIELD, Colo.—Innovation matters, Scott McNealy says. The founder and still chief executive of Sun Microsystems says that he will remain committed to a "controversial strategy" in the computing industry that says, good research and development can embody in hardware what other companies deliver with armadas of high-priced consultants; and, will provide answers to "large scale computing problems" that other suppliers of hardware can't match. "In a world increasingly turning to standardized microprocessors and computers based on them," McNealy said, "We believe Intel doesn't have lock on all the good silicon ideas, so we're going to innovate there."

Sun, for instance, has been delivering processors that chew data in 64-bit chunks for almost eight years now. Intel is still attempting to gain acceptance of its Itanium processor, with similar chewing capacity, and Advanced Micro Devices is just beginning to introduce its Opteron alternative.

In its 2002 fiscal year, Sun spent $1.8 billion on research and development. That was 14.7% of its $12.5 billion in revenue for the year. By contrast, Dell Computer, which assembles machines based on Intel processors, spent $455 million on research and development. That was 1.2% of its $35.4 billion of revenue. The heavy spending on research helped push Sun into the red. The company recorded a net loss of $587 million. Dell produced a net profit of $2.1 billion. McNealy acknowledged that returning his company, whose stock closed the week at $3.92 a share, to consistent profitability is critical. He acknowledged Saturday that growing revenue and cutting costs are his top priorities.

He said he expects to be able to save "hundreds of millions" of dollars in annual expenses, by encouraging Sun employees to work at home, driving down facilities costs; reducing the expense of maintaining and upgrading customers' systems, through remote diagnostics and "proactive" replacement of components; and, such moves as turning over training facilities and specific training tasks to Accenture, the large technology consulting firm.

McNealy's comments came in the town that is home to Sun's corporate services business. He said Sun is able to integrate hardware and software in its own facilities, crash-test it and deliver it ready to go. He discounts Dell's ability to match that.

"Michael Dell is Autozone," he said. "Michael just ships you car parts, he doesn't ship you a system."

When analyzing the purchase of a system from the Texas manufacturer, "you need to go down his price list and give it to a corporation and there's a staggering amount of work that you have to do. Put it in a rack, raise the floor, do the air conditioning, all rest of it, then bring in the storage, bring the network inside the firewalls, you've got to piece it all together," he said. "We build the whole thing in our customer-ready systems."

In the fourth quarter of its 2003 fiscal year, Sun said in late July that it earned $12 million. But for the full year, the company said it suffered a net loss of $2.4 billion on revenue of $11.4 billion. Nonetheless, the cash generated by its operations exceeded the cash it used, for the 35th consecutive quarter. The company ended the year with more than $5.7 billion in cash and marketable securities.

This article was originally published on 2003-09-15
Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.
eWeek eWeek

Have the latest technology news and resources emailed to you everyday.