Management Turnover as Change Agent

Thursday, October 23, 2008

CEO Watch List - Jonathan Schwartz, Sun Microsystems

For sometime I have been considering including Sun Microsystems’ SUN (NASDAQ) CEO, Jonathan Schwartz, on my CEO Watch list.  Schwartz was appointed CEO back in 2006.  While I have long admired his intelligence and creative thinkiJonathan Schwartz, CEO, Sun Microsystemsng the company’s overall performance under his tutelage has not faired all that well.  For a long time, I thought he would ultimately find a path to success for the firm.  Recent events, however, have forced me to include Schwartz on my CEO Watch list.   First there was the company’s latest performance results.  According to Therese Poletti of MarketWatch,Sun Microsystems One Year Stock Chart

On Tuesday, the systems and software maker gave Wall Street a nasty surprise with the news that it expects to report a worse-than-expected loss in the fiscal first quarter. It is also conducting an internal “impairment analysis” because some its business units may be now worth less than their carrying value. 

 Poletti went on in the article to say,

It is time for Schwartz to make some serious changes at the beleaguered company, or it is going to continue in its downward spiral, in the same manner as ghosts from tech’s past, such as Digital Equipment Corp. 

Second, the company’s troubled performance has been seriously complicated by its largest shareholder, O. Mason Hawkins the CEO of Southeastern Asset Management.  Southeastern Asset yesterday disclosed it holds just over 21% stake in Sun. Hawkins has begun to squeeze the vise around Schwartz.  Hawkins is pushing hard for Sun to make changes to increase shareholder value.  They recently shifted their SEC filing from a 13G to 13D.  The change indicates Southeastern will no longer sit by passively but will continue to pressure management for changes.The proverbial third shoe fell today.  The co-founder of the firm, Andy Bechtelsheim, who returned to the firm four years ago, announced today he would be leaving Sun.  According to a story in Business Week,

(He will leave Sun) to become chairman and chief development officer at Arista Networks, a startup he has funded that sells a powerful network switch for data centers, and whose customer list includes Google (GOOG). Arista’s CEO is Jayshree Ullal, who left Cisco Systems (CSCO) in May after 15 years at the company, and who had worked on some of the company’s key products. 


The departure of Sun’s star engineer, who had spearheaded development of a new line of more affordable products the company is pushing, comes as Sun’s sales slump and investors grow impatient with the company’s turnaround plans.

Numerous analysts are predicting a possible sale of the company or parts or a management change.  The problems facing Sun at this point in time make it likely that Schwartz may find himself out of his CEO position if he can not found a solution to the company’s ongoing difficulties. Stay tuned. 

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