McNealy vacates centre stage at Sun

Brash, optimistic and pugnacious, Scott McNealy will always be identified with Silicon Valley's great period of exuberant expansion. This week, however, a more muted Mr McNealy was on display as the co-founder of Sun Microsystems took a step away from centre stage.

"We clearly got mis-positioned in the marketplace," he conceded, after announcing that he would step down as chief executive officer in favour of Sun's number two, Jonathan Schwartz. "I'll take the hits for where we went wrong."

Sun under Mr McNealy developed an arrogance during the boom years that appeared to blind it to the new realities of the tech world after the bust. "We lost focus on the customer from a quality and service perspective," the Sun chairman said this week.

Sun still plans to plough money into the high-tech products that it believes will set it apart, even though that led it to spend 16 per cent of its revenues on research and development last year. Squeezing a better return out of that investment in a tech market that is now dominated by low-cost, standardised products will be the new chief executive's biggest challenge.

Mr Schwartz at least starts out with what is generally seen as a better product line-up than Sun has had for some time. The key now, according to Mr Schwartz, is to increase sales volume.

One promising sign is that in the latest quarter the company said that sales of its core products had turned up again in the US - something few on Wall Street had expected. Investors, however, are more likely to dwell in the short term on the need to cut costs further.

Sun has already gone some way to trimming its R&D as it focuses on fewer, bigger bets. However, it still maintains a wide range of products not directly related to its core server business.

While claiming that he needs only to "refine" Sun's existing business model, Mr Schwartz has already given hints that deeper changes may be needed, for instance to reduce its heavy sales and marketing costs.

At least Mr McNealy, who oversaw Sun's rise, will not be the one who has to make the tough choices.