Scott G. McNealy
1954–

Cofounder, chairman, and chief executive officer, Sun Microsystems

Nationality: American.

Born: November 13, 1954, in Columbus, Indiana.

Education: Harvard University, BA, 1976; Stanford University, MBA, 1980.

Family: Son of Raymond William McNealy (business executive) and Marmaline (maiden name unknown; homemaker); married Susan Ingemanson, 1994; children: four.

Career: Sun Microsystems, 1982–1984, vice president, manufacturing and operations; 1984–1999, chairman, president, and chief executive officer; 1999–2002, chairman and chief executive officer; 2002–2004, chairman, president, and chief executive officer; 2004–, chairman and chief executive officer.

Address: Sun Microsystems, 4150 Network Circle, Santa Clara, California 95054; http://www.sun.com.

■ With three other young entrepreneurs, Scott G. McNealy founded Sun Microsystems in 1982. Despite having no technical background, McNealy's leadership helped to develop Sun into one of the world's leading computer companies. The success of the business rested upon McNealy's determination, business acumen, and ability to motivate those who worked around him. Many analysts commented on McNealy's willingness to take risks and reinvent the company in order to adjust to changing industry conditions. In particular, McNealy's dedication to the company vision, "the network is the computer," meant that Sun was ideally placed to take advantage of the rise of the Internet in the mid-1990s.

McNealy gained a reputation as a brash and aggressive CEO, notorious for his outspoken comments about his business rivals. McNealy was Microsoft's harshest and most vocal critic throughout the 1990s, and he was called on to testify during congressional hearings into competition in the software industry. His willingness to poke fun at himself and his rivals

resulted in memorable wisecracks and some colorful publicity stunts, making him one of the more unconventional CEOs in corporate America. However, despite the loud public persona, those who worked closely with McNealy emphasized his business insight, his appreciation of his coworkers, and his ability to relate to many different types of people. While McNealy could not be regarded as a typical CEO, the company he built in many ways typified the phenomenal growth and technological achievement that was associated with Silicon Valley during the last two decades of the twentieth century.

EARLY EXPERIENCE

Growing up, McNealy gained exposure to the business world through his interest in his father's job as a manager at American Motors. His father eventually became vice chairman of the company, and the experience of watching American Motors decline was important in shaping the younger McNealy's understanding of business. Sports were also important in McNealy's early life. He developed early passions for hockey and golf, which continued into adulthood; McNealy was named the top CEO golfer by Golf Digest in 2002, and he continued to play hockey into his 40s. When the McNealy family settled in Bloomfield Hills, Michigan, McNealy attended the elite Cranbrook prep school. He valued the atmosphere at the school, especially the experience of being around bright people and being treated as an adult, which he said better prepared him for life at college. Although he was not a dedicated student, McNealy was able to gain entrance to Harvard. He enrolled as a premedical student, intending to become a doctor, but switched to economics. This was due mainly to the influence of an economics teacher, Bill Raduchel, who was later to join him as chief information officer at Sun. Despite listing his main interests at college as beer and golf, McNealy managed to graduate from Harvard in 1976.

While trying to gain entrance to Stanford Business School, McNealy spent two years working as a plant foreman at Rockwell International, in a factory that made body panels for tractors. This practical experience in a manufacturing environment proved to be extremely valuable. McNealy later said that this was better preparation for running a company than anything he learned at Harvard or Stanford. Eventually accepted into Stanford, on his third attempt, McNealy was one of the few MBA students to concentrate on manufacturing, rather than finance. Upon graduation in 1980 McNealy went to work for FMC Corporation, building Bradley tanks for the U.S. Army. In 1981 he took a job as manufacturing manager with Onyx, a small company manufacturing computers. While he had no technical knowledge of the computer industry, Mc-Nealy's manufacturing experience and people skills impressed the CEO at Onyx, Doug Broyles: "We brought him on as director of operations, and put manufacturing and purchasing under him. Within a couple of weeks, Scott had the 50-year-old manufacturing guy's respect and they were working as a team. Scott went out on the line and talked to people" (High Noon ). Throughout his career, and despite his privileged background, McNealy cultivated an image as a down-to-earth, blue-collar workingman, which appealed to many people.

STANFORD UNIVERSITY NETWORK

McNealy's manufacturing experience did not make him an obvious candidate for founding a Silicon Valley start-up company. However, in 1982 a college friend from Stanford made McNealy an exciting offer. Vinod Khosla was a passionate and driven entrepreneur, with an exciting vision for the future of computing. He met Andy Bechtolsheim, a PhD student who was working on a project called the Stanford University Network, or SUN. Khosla recognized that Bechtolsheim's work could provide the solution to his idea of a powerful workstation to replace the minicomputers that software engineers were using. This workstation would operate while plugged into a computer network, allowing for electronic collaboration. Khosla invited McNealy to join the project because of his valuable business and manufacturing experience. A fourth member of the team, Bill Joy, was brought in for his programming genius to develop a Unix operating system for the prototype workstation.

The four men, all in their 20s, had very little business experience between them, but they had passion and ambition to make Sun Microsystems a success. The first Sun-2 workstations hit the market in late 1982. Few people in the industry took the upstarts seriously. At the time, Apollo Computers dominated the workstation market, and its staff joked about the "kids" at Stanford. But after Sun beat out Apollo for a crucial deal to supply workstations to Computervision, it was apparent that they had to be taken seriously. Sun's aggressive campaign for the contract, even after Computervision had originally decided to go with Apollo, became a hallmark of Sun and of McNealy's business style.

Initially, McNealy's position within the company was as vice president of manufacturing. Khosla, as the visionary force behind the new company, was CEO. But it soon became apparent that it was McNealy, not Khosla, who was providing leadership to the company's expanding workforce. Of the four founders, only McNealy had the personal skills and experience to deal with the varied demands of running a company. As McNealy described his role in these early days, "I couldn't program anything. I still can't program anything. I wasn't the technical guru. I wasn't the visionary. I was kind of the glue that kept everybody together and helped enunciate what our goals were, how we're going to get there, and kind of cleaned up after the engineers and made sure the customers got what we promised them" ("Scott McNealy Oral History"). This ability to crystallize and implement the vision of others became one of McNealy's strengths throughout his career.

Increasing dissatisfaction among staff and board members over Khosla's performance as CEO led to his leaving Sun in 1984. As the only obvious successor, McNealy was named interim CEO, but the board was concerned that this brash young man, who often lacked tact or discretion, did not have the business acumen required to run the company. A search outside the company failed to produce a suitable alternative, however, and the board decided to stick with McNealy. This was a big gamble, as McNealy was inexperienced, had little technical knowledge of the industry, and had a reputation for cockiness and arrogance. However, his confidence, energy, and total commitment to making the company succeed helped convince the board that he could do the job. Their faith proved well founded. As Sun Microsystems developed from a brash renegade into an industry powerhouse, so too did its CEO.

CHALLENGES

McNealy faced many challenges over the next two decades. His abilities were questioned at times and his response to these challenges highlighted some of his main attributes as a leader. One of the first major trials McNealy faced as CEO came in 1989, when, after several years of rapid growth, Sun posted its first quarterly loss. The company had grown at a phenomenal rate, surpassing its main competitor in 1987 and reaching $1 billion in revenue in 1988, but such rapid growth caused difficulties. Under McNealy's leadership, Sun had placed heavy emphasis on gaining market share, often at the expense of profit margins. Problems with internal systems meant that it was unable to manage production and keep up with demand for its products. At the same time, several key executives left the company, raising questions about McNealy's management style. Some business analysts suggested that the company had outgrown McNealy's abilities as CEO.

In response, McNealy instituted changes in the company's strategy that showed his maturity as a business leader. He put new focus on the importance of costs as well as growth and developed new internal accounting processes that controlled spending. He also made the crucial decision to consolidate Sun's products, basing everything around the new microprocessor developed by Sun's own engineers, the SPARC chip. Other products based on the Intel chip or Motorola technologies were discarded. This was risky, as market acceptance of Sun's new technology was not yet established.

McNealy also initiated an important restructuring of the company during the early 1990s. He reorganized the company into seven planets, each of which represented sales and marketing focused around a specific product line. The new decentralized structure had positive and negative outcomes, which highlighted McNealy's strengths and weaknesses as a leader. While most people agreed that transformation was necessary, in practice executives bickered with each other over their own agendas. Rather than provide his team with practical guidance on how each planet was supposed to interact with the others, Mc-Nealy preferred to move on and focus on the next challenge, the next big sale. He often gave more attention to the newer technologies, while neglecting the older, more established parts of the business. This resulted in jealousy and tension between different areas. Nevertheless, the new structure did allow the various businesses within Sun to focus on establishing their own markets, without interference from the others. Many believe that the reorganization enabled the company as a whole to foster innovation in a way that would not have been possible in a more centralized business.

"THE NETWORK IS THE COMPUTER"

At the same time, Sun repositioned itself and carved out a new market away from workstations. Since the company's inception, McNealy had been a strong proponent of the slogan "the network is the computer." This meant that the true value of the computer did not come from the machine you could see on your desk, but instead from the power it derived from being connected to other computers. Sun's commitment to this model meant their machines had always been built with network capabilities, and they were much more powerful than PCs. As businesses began to understand the benefits of data networking in the early 1990s, Sun's workstations were ideally positioned to evolve into network-server computers. With the rise of the Internet, Sun's network slogan finally became clear to most people, and Sun's servers were at the center of the Web revolution. As the Merrill Lynch analyst Steven M. Milunovich claimed in a 1999 BusinessWeek article, "If you want to know where the computer industry is going, ask Sun" (January 18, 1999). McNealy's long-term dedication to the network vision had finally paid off.

The launch of Java also identified Sun as a leader of Internet-based technology. Java was a programming language developed by Sun's software engineers in the early 1990s. It was unique because it was not tied to a particular computer operating system. This meant it could be run on almost any computer at any time, provided that the computer had a Java interpreter. Therefore, it was ideal for the Internet environment, where millions of computer users needed to be able to talk to each other in one universal computer language. McNealy saw Java as the basis of a completely new platform for the computing world, one that could challenge the dominance of Microsoft. Inevitably, this would bring him into direct conflict with Microsoft.

THE BATTLE WITH MICROSOFT

When McNealy helped to found Sun, Microsoft had little presence in the industry. Before long, however, the industry would have to grapple with the growing dominance of Microsoft's Windows operating system combined with the Intel computer chip, an alliance that became known as Wintel. Mc-Nealy was quick to recognize that Wintel technology would eventually threaten Sun's key markets. As he saw it, Microsoft's CEO, Bill Gates, had a flawed vision for computing that dominated the industry due to Microsoft's unfair business practices. Never one to shy away from directly criticizing his competitors, McNealy's rhetoric reached new heights in the battle against Microsoft.

McNealy's attacks on the company certainly won Sun publicity, but not all were convinced that this was necessarily positive attention. Some people felt that McNealy's anti-Microsoft zeal crossed the line into obsession. For instance, banning all Sun employees from using software such as Microsoft PowerPoint was not popular, as staff needed to be able to operate with Microsoft products when dealing with customers. Many customers were also worried by McNealy's attacks on Microsoft and his apparent inflexibility over the issue of Wintel technology. What they wanted was to be able to run both kinds of technology, not to have to choose between them. McNealy's stubborn insistence that Sun would stand apart from Microsoft was in some senses ignoring the real world in which people needed to be able to operate with both.

The case of Java indicated how difficult cooperation between the two companies was. In 1996 Sun and Microsoft worked out a deal that licensed Microsoft to include Java in its Windows operating system. As the vast majority of desktop computers were running Windows, Sun needed Microsoft to incorporate Java if it was to become a truly universal computer language. At the same time, Microsoft had to use Java because it had been slow to reposition itself in the new world of Internet computing. The deal quickly collapsed, however, with Sun alleging that Microsoft violated the contract by making changes to Java that were incompatible with Sun's own systems. Inevitably, Sun sued Microsoft for breach of contract in 1997.

THE NEW MILLENNIUM

The 1990s had proved to be a great decade for Sun and McNealy. The company had been transformed into an innovative leader in the information-technology industry, and in Java it had one of the most exciting new technologies of the era. McNealy's vision for the Information Age and his crusade against Microsoft's monopoly gained him an appreciative audience. He became one of the most high-profile high-tech CEOs, winning over audiences with his willingness to poke fun at himself as well as his competitors. In a 1996 BusinessWeek article, Sun's former treasurer, Thomas J. Meredith, saw this as one of McNealy's key strengths: "His humor and ability to raise a crowd to its feet is in many respects exactly what you need in CEOs and leaders of today's industry" (January 22, 1996).

However, the year 2000 heralded the beginning of Scott McNealy's most difficult period as CEO. With the crash of the dot.com and telecommunications industries and an economic recession exacerbated by the September 11, 2001, terrorist attacks, technology spending plummeted. Sun faced increased competition in its server market from companies producing cheaper alternatives. Sales of Sun products were also badly affected by the Linux operating system, an open-source software that was free to anyone who could download it off the Internet. By 2004 Sun faced 12-consecutive quarters of shrinking revenues, and it had been posting losses since 2002. The credit-rating agency Standard & Poor's dropped Sun's rating again in 2004, and substantial staff layoffs were announced. McNealy faced criticism for his apparent inability to return the company to profitability. Some analysts predicted the eventual demise of the company.

These factors were behind the shocking announcement in April 2004 that Sun and Microsoft were calling a truce. Microsoft would pay Sun $2 billion to resolve lawsuits, and the two companies agreed to work toward making their technologies more compatible. Many in the industry read the deal as a capitulation by McNealy. It also sparked speculation that he was approaching the end of his time as Sun CEO. Analysts questioned whether McNealy could work closely with Microsoft, when so much of his earlier motivation had come from trying to prevent Microsoft from gaining total control of the industry. There was little doubt that Sun needed to be taken in a new direction if it was to survive, and some people were unsure if McNealy was the right person to do this. McNealy's name was also mentioned as a possible successor at Oracle Corporation if Larry Ellison were to step down as CEO. But McNealy continued to lead the company that he helped to found, relying on continued innovation and new products to return his company to profitability.

See also entry on Sun Microsystems, Inc. in International Directory of Company Histories.

sources for further information

"Face Value—Desperate Embrace," Economist, April 10, 2004, p. 54.

Hof, Robert D., "Scott McNealy's Rising Sun," BusinessWeek, January 22, 1996, pp. 66–72.

Hof, Robert D., Steve Hamm, and Ira Sager, "Sun Power," BusinessWeek, January 18, 1999, pp. 64–70.

Schlender, Brent, "The Adventures of Scott McNealy—Javaman," Fortune, October 13, 1997, pp. 70–76.

"Scott McNealy Oral History," http://www.cwheroes.org/oral_history_archive/mcnealy/2003.pdf.

Southwick, Karen, High Noon: The Inside Story of Scott McNealy and the Rise of Sun Microsystems, New York: John Wiley & Sons, 1999.

—Katrina Ford

McNealy, Scott

(1954-)
Sun Microsystems, Inc.

Overview

The story of Scott McNealy and his company Sun Microsystems is a textbook example of Silicon Valley success. McNealy co–founded Sun Microsystems in 1982, and the company became the leading global supplier of network computing systems, generating sales of over $18 billion. Since taking the helm as CEO in 1984, McNealy has spurred the company to even greater expansion and profit. McNealy's mission is to prove the company's slogan: "The network is the computer." Sun Microsystems specializes in network computers (NCs), as opposed to personal computers (PCs), and hopes that its Java software will succeed in breaking up the near–monopoly of Microsoft's Windows operating system.

Personal Life

Scott McNealy and his wife Susan were married in 1994 and gave birth to their son, Maverick, the following year. Characterized as brash, fun–loving, and extremely energetic, McNealy enjoys creating catch phrases to explain his business philosophy ("have lunch or be lunch") and strategies ("the network is the computer"). His motto, "kick butt and have fun," sums up his general approach to work. In fact, humor is an important part of Sun's corporate culture. For example, elaborate April Fool's Day pranks have become a corporate tradition, with company engineers targeting McNealy and other executives.

Scott McNealy was born on November 13, 1954, to Marmalee and Raymond McNealy. He grew up in the Detroit suburb of Bloomfield Hills with his two brothers and a sister. His father, who rose to the level of vice chairman of American Motors Corporation, often engaged his teenage son in discussions about business. He even took him golfing with Lee Iacocca, former chairman of Chrysler Corporation, Raymond McNealy's later employer.

Although Scott McNealy has an impressive educational background, he was not a model student. After attending Cranbrook Kingswood, a private preparatory school where he served as captain of the tennis team, he earned a degree in economics from Harvard University in 1976. But his initial applications to the graduate business schools at both Harvard and Stanford universities were met with rejection. Finally, McNealy was admitted to Stanford on his third try. A manufacturing major, he received his master's degree in business administration in 1980.

Career Details

While awaiting acceptance to graduate school, Scott McNealy took a job as foreman and plant scheduler for Rockwell International at a plastics facility that produced truck hoods for the company's automotive operations. Anticipating a labor strike, Rockwell officials ordered its employees to work double shifts in order to maintain production. McNealy contracted hepatitis two months into the accelerated schedule and was hospitalized for six weeks. In the meantime, he was admitted to Stanford, prompting him to quit his job in Ohio and head for California.

McNealy's first job after receiving his MBA was at a tank manufacturing facility owned by FMC Corp. of Chicago, Illinois. He resigned from this position 10 months later, however. As he later told a reporter for Fortune magazine, "FMC put me on a strategy team, and I wanted to be a plant manager. I wanted to make something."

In 1981 McNealy was hired as the director of manufacturing for Onyx Systems, a minicomputer company based in San Jose, California. Assigned to improve quality control, he achieved this goal by meeting with employees, talking about the difficulties that they faced, and encouraging them to solve problems on their own. Yet he was still not quite satisfied with the way his career was unfolding. Though his passion for manufacturing had not waned, his commitment to the demands of corporate life was not as strong. In fact, as he revealed to Industry Week, McNealy dreamed of owning a small machine shop. "If it all worked out," he explained, "I figured my kids would run it someday and I'd get out when I was 45 or 50 years old and play golf."

McNealy's plans underwent a sudden and dramatic change, however, when a former Stanford classmate and engineer named Vinod Khosla invited him to become involved in a new computer company that he planned to establish with product designer Andreas V. Bechtolsheim and programmer William N. Joy. Although he knew very little about computers, McNealy accepted his friend's offer and began work as head of manufacturing for the newly–formed company. In the end, the creation of Sun Microsystems, Inc., in 1982 catapulted McNealy to the ranks of an elite group that Forbes magazine dubbed "high tech's new royalty."

McNealy proved to be highly skilled at his new job, enabling the company to meet the explosive demand for its products that propelled sales from $9 million in 1983 to $39 million in 1984. Soon McNealy was also running the sales department and actively seeking funds to help the company expand. In 1984 Eastman Kodak Co. agreed to invest $20 million in the company if McNealy were promoted to president. Around the same time, Khosla left Sun and McNealy was named interim president. Within a few months the company's fortunes took off and McNealy, at the age of 30, was named Sun's CEO.

Under McNealy's leadership, Sun made its name by manufacturing computer workstations of the type traditionally favored by sophisticated users like engineers and scientists. When a network links such computers, their resources are multiplied geometrically, making them more powerful than individual personal computers or terminals served by a mainframe computer. McNealy's commitment to network computing paid off during the 1990s, as major business clients turned to the format in increasing numbers. Among the firms Sun supplied with networks for their internal operations were Federal Express, the Gap, AT & T, Universal Card Services, and Charles Schwab.

Network computing proved to be an important Internet tool as well. In 1996, for example, some 35 percent of World Wide Web servers were Sun computers. These servers, the type of machines on which companies tend to install all of the software that run their business, proved to be more reliable, versatile, and powerful than those driven by software developed by Sun's competitors, chiefly Microsoft Corp.

Sun Microsystems created two other important products that catered to the needs of Internet users and large businesses. The first and most revolutionary one was Java, a universal computer language that enabled all networked computers to communicate with each other and share applications, regardless of which operating systems they were using. Unveiled in 1995, Java created quite a stir in the computer industry as enthusiastic programmers marveled at the notion of writing software that could flow without restriction from machine to machine along a network. Furthermore, Sun engineers demonstrated that Java mini programs, called "applets," could spice up Web pages with the ability to program motion with words and images. Java thus had the potential to generate revenue for Sun in several ways—as a licensed language, as the language used in Sun–authored programs, and as its own operating system.

Sun Microsystems was one of the first computer companies to offer network computers (NCs), disk–less machines made especially for working on the Internet. With an NC, a user's files and applications were stored at a remote location that was accessible via the Internet. A second–generation version of this machine, the Sun Ray 1 enterprise appliance, was launched in late 1996. Called a "thin client" in Silicon Valley parlance, the $800 Sun Ray was both a new era for the network computer and a return to the early age of computers. Before microprocessing chips revolutionized the desktop computer, such units didn't even possess the capability to store major software systems. The thin clients' access to the retrieval capabilities of the Internet, in fact, might someday even render the disk drive obsolete.

Some critics speculated that the Sun Rays were not likely to appeal to the average consumer. McNealy, impervious to such criticism, remained a staunch champion of this and all of his company's product introductions. He theorized that in the end, a bit of negativity only adds to the product's value. "I mean, if everybody thinks breathing is a good idea, how do you differentiate yourself in the market?" he queried in Maclean's. "So I want everybody to think it's a dumb idea. I do. There's plenty of time and the customers will decide, not some writer who doesn't know."

Chronology: Scott McNealy

1954: Born.

1976: Received degree in economics from Harvard.

1980: Received MBA from Stanford.

1982: Co–founded Sun Microsystems, Inc.

1984: Became president of Sun Microsystems.

1984: Became CEO of Sun Microsystems.

1995: Unveiled Java computer language.

1998: Entered partnership with chipmaker Intel.

1999: Introduced StarOffice software suite.

2001: Launched Jini technology.

McNealy was among those excited about Sun's prospects. Others expressed a hint of caution, noting that even though Bill Gates and Microsoft lagged behind Sun in the world of networked computers, it would be dangerous to downplay the threat that they posed. "We're not going to make any money on Java, but that's all right," McNealy admitted in OEM Magazine. "We'll make money selling servers and desktops and network–management software. We just want the world to be free from having to write to Windows." Indeed, Sun's sales rose to over $762 million by the end of 1997.

Over the years McNealy became one of the most vocal critics of Microsoft and its business tactics, fervidly supporting the U.S. Justice Department's anti–trust suit against Bill Gates' company. "If anyone can loosen Microsoft's choke hold on the future of technology, it may well be Scott McNealy," declared Forbes. The head of Sun Microsystems served a number of volleys, some through legal channels, in the war against Microsoft. He voiced strong objections to Microsoft's increasing investment in telecommunications and cable companies. Many of these innovative firms, poised to earn daily fortunes with the digital revolution of the twenty–first century, were lucrative clients of Sun's. Their systems typically used Sun servers and the Solaris operating system, developed in partnership with Unix, and stood as the primary competitor to Windows 2000, formerly Windows NT.

Microsoft's purchase of stakes in such telecommunications companies as AT & T raised McNealy's ire. Other telecom giants, including Qwest, Comcast, and Nextel, were also seduced by a Microsoft investment, and some of them switched from Sun's platform to Windows NT. "The way McNealy sees it, this is all a grand strategy to kill his company," explained David Kirkpatrick in Fortune.

McNealy's firm was far from distressed, though. Sun's revenues continued to climb throughout 1999, and its stock performance rose likewise, jumping from $30 a share to $120 a share in the span of 12 months. The company forged a partnership with former Microsoft partner Intel to create a new chip, the Merced, for its Solaris system—a working partnership that posed a greater threat to Microsoft. Several e–commerce sites remained loyal to Sun, among them the Internet auction site eBay and bookseller Amazon.com. McNealy and his company also ventured into the software business with the acquisition of a German company and the launch of its StarOffice product. Considered a competitor to the Microsoft "Office" suite of word–processing, spreadsheet, and communications software, Sun offered free downloads of StarOffice over the Internet, and at the end of 1999 some 40,000 people were downloading the software daily.

By September 2000, when the Internet technology market peaked, Sun was valued at $210 billion, roughly 10 times its revenues and 100 times its earnings. Over the preceding 18 months, the company's revenues had climbed 60 percent to $15.7 billion, and profits had increased 150 percent to $1.9 billion. The chief reason for this explosive growth lay in the nearly exclusive use of Sun computers wherever Internet applications ran, whether in e–commerce firms, telecommunications service providers, or traditional companies.

With the rapid collapse of the Internet technology market, in particular the dot–com companies, in the early months of 2001, Sun's fortunes took a dramatic downturn. In the first three months of 2001, revenues had fallen 20 percent from the previous quarter, and profits were down 43 percent from the previous year. In response, the company's stock declined in value by about 70 percent.

Nevertheless, McNealy managed to remain optimistic in the face of the dire news. After all, Sun Microsystems had seen its fortunes rise and fall before, and it had survived through worse. In fiscal years 1989, 1992, and 1993, earnings had also declined significantly. And in 1998, before Internet sales began to take off, the company had posted only a 14 percent gain in revenues. By mid–2001 Sun was still in good shape, as it had not made any layoffs, it had a manageable inventory, and it had already cut its sales, marketing, and overhead expenses by $40 million in the first quarter of the year. At the end of fiscal 2001, Sun's sales made an impressive turnaround, up 16 percent to over $18 billion.

In 2001, after months of anticipation, Sun Microsystems launched its new Jini technology. Using the Java language as its foundation, Jini software sought to make computers and other devices as easy to use as plugging in a telephone. Sun held a press conference to announce that 35 companies, including Sony, Philips Electronics, and Hewlett–Packard, were licensing the technology, but industry insiders cautioned that it was still in its early stages.

Social and Economic Impact

With both its Java software language and the network computer (NC), Scott McNealy made a concerted effort to challenge the near–monopoly of the Windows operating system and its creator, Microsoft. McNealy was determined that his company remain poised as a competitive threat and avoid becoming merely another of Windows' many vendors. Sun's unique Solaris system and Intel partnership gave his company the ammunition necessary to fulfill McNealy's aims. Brent Schlender observed in Fortune, "He has forced Microsoft to rethink basic aspects of its business and play a little catch–up." For that alone, McNealy stood out in an industry that had seen its share of big names, including IBM, Apple, and Netscape, that took on Bill Gates and Microsoft and lost. It is a fate that McNealy had no intention of sharing.

After the U.S. Justice Department's announcement of an anti–trust investigation into Microsoft's business practices, Sun's corporate nemesis increasing became a target of the McNealy wit. A regular speaker at industry gatherings, McNealy gained a reputation for a vast roster of jokes that poked fun at Microsoft, Windows, and Gates himself, whom he referred to as "Billy Big Bucks." Interviewed by Fortune in 1997 at the height of Sun's Java launch, McNealy kidded the editors about Gates' frequent appearances on the magazine's cover, and asked what he would have to do to make it there himself. The editors responded that he should wear a Superman suit with a "Java" logo on it, to which the self–assured CEO readily agreed. "That cost me about an hour to do the shoot," McNealy told Maclean's. "And a little dignity, but that ain't so expensive. We got a wonderful article out of it."

Sources of Information

Contact at: Sun Microsystems, Inc.
901 San Antonio Rd.
Palo Alto, CA 94303
Business Phone: (650)960–1300
URL: http://www.sun.com

Bibliography

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Laver, Ross. "The Mouth That Roared." Maclean's, 11 October 1999.

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Scott McNealy

Scott McNealy (born 1954), co-founder, president, and CEO of Sun Microsystems, is an outspoken Silicon Valley maverick. He made his fortune by challenging the computer industry dominance of Bill Gates and Microsoft and championing a network-based computer system based on Sun's Java software, a universal programming language.

McNealy is an unlikely Silicon Valley visionary. He is no technocrat. He didn't drop out of college to found Sun Microsystems. In fact, his background is in Midwestern manufacturing, where his father worked as a top executive in Detroit's automotive industry. Since a twist of fate brought him to California and the helm of Sun, McNealy has worked tirelessly to build the company into one of the world's leading corporations, based on the idea of network computing and a universal operating language. For more than a decade, he nearly single-handedly led the fight against Microsoft and Bill Gates and helped persuade the Justice Department to file historic antitrust charges against the software giant.

Rustbelt Roots

McNealy is a product of the Rustbelt, but with an Ivy League twist. Born in Columbus, Indiana, on November 13, 1954, he was raised in the upper-class suburb of Bloomfield Hills, Michigan. McNealy attended Cranbrook Kingswood School, a prep school north of Detroit. A model student and athlete, McNealy captained the school's championship tennis team and excelled on the golf and hockey teams.

McNealy's early business education came at the hands of his father, William McNealy, a vice-chairman at American Motors Corporation. As a youngster, McNealy spent evenings at home discussing company strategy with his father. On weekends, while his dad caught up on paperwork, McNealy would walk around the factory floor. He picked up more lessons in corporate wisdom on the golf course, joining golf outings with famous automotive executives such as Lee Iacocca. Early on, McNealy recognized that AMCs troubles stemmed from an insufficient market share. The car manufacturer did not have the financial, marketing, or technological firepower to shape the direction of the industry.

Following in his father's footsteps, McNealy attended Harvard University and majored in economics, but he now jokes that he minored in beer and golf. In fact, he captained the Harvard golf team and missed the cut for the 1976 NCAA championship by one stroke. After a less than stellar undergraduate career, McNealy tried to get into business school, but was turned down by Harvard and declined twice by Stanford. Always deeply interested in manufacturing, he took a job as a foreman at the Rockwell International Corporation plant in Ashtabula, Ohio in 1976. The company, which built truck hoods, was preparing for an impending strike. The young manager worked 14-hour days for two months, landing in the hospital for six weeks with a case of hepatitis.

Go West Young Man

McNealy's work record helped him get accepted at Stanford, although his study habits didn't really improve. Classmates remembered him preferring golf to attending classes. He even focused on manufacturing courses at a time when they were out of fashion. After graduating, his first job was with FMC Corporation, a defense contractor that made tanks. Later, he joined minicomputer maker Onyx Systems. McNealy had no desire to become a high-powered CEO after watching his parents' marriage dissolve as a result of the long hours that his father had to work. Instead, McNealy dreamed of running a small family machine shop that he could turn over to his children and take an early retirement.

In 1982, McNealy's life would change forever. He received a call from a former Stanford classmate, Vinod Khosla, who asked him to join with Bill Joy and Andreas Bechtolsheim to form a computer company called Sun (for Stanford University Network, where Bechtolsheim built the first workstation). The company focused on building high-performance computers based on readily available, inexpensive components and the UNIX operating system. McNealy and Sun leaders based their vision on the idea that computers reached their full potential only by working together in networks. Soon, Sun would become the largest company to build computers with its own design, own Sparc chip, and own operating system, called Solaris.

McNealy's manufacturing expertise helped the young company keep up with demand as sales jumped from $9 million in 1983 to $39 million in 1984. Sun grew so quickly, in fact, that expansion outpaced cash supply. McNealy found a benefactor in J. Philip Samper, then executive vice president at Eastman Kodak. On Samper's recommendation, Kodak pledged $20 million to Sun. In turn, they required that McNealy take over as president. In 1984, when Khosla left the company after a dispute with the board of directors, McNealy was named president. Considered too young for the job, the directors looked for a replacement, but McNealy's early success leading Sun secured his position as CEO.

Typical of many Silicon Valley success stories, Sun developed an irreverent corporate culture based on McNealy's own motto: "Kick butt and have fun." An admitted ice hockey junky, McNealy played on several teams near the Sun headquarters in Palo Alto, California. Dick Boyce, a Stanford classmate, told Business Week writer Robert D. Hof that McNealy "would be happy to be described as Joe Six-Pack working hard to get the job done."

Although Sun has a casual work environment and is noted for its laid back atmosphere, McNealy is an intense competitor. He explained to Industry Week's Charles R. Day Jr., "There is nothing casual about Sun. We are intense, disciplined, driven, focused, at times even maniacal. Our culture is doing things that matter. And I'm an absolute believer in what we're doing. As the CEO you must be, or you ought to be shot for not changing the company into what it ought to be doing."

The Network is the Computer

Sun went public in 1986 and two years later had annual sales of $1 billion. However, like many successful young companies, Sun grew too fast. Recognizing the problems, McNealy revamped Sun's manufacturing systems and pared its product line. Attention was focused on workstations built around the high-powered processor, the Sparc chip. This reorganization helped Sun reach sales of $3 billion by 1992.

In the early 1990s, however, Sun's vision of the industry based on the UNIX system and networked computers lagged behind the Microsoft and Intel (Wintel) alliance. Microsoft already equipped more than ten million personal computers. McNealy realized his primary adversary was Bill Gates and Microsoft when Gates began touting Windows NT, a system that would match UNIX. He began a full-scale assault on Microsoft. McNealy unleashed numerous one-liners directed at Gates and the public perception of Microsoft's dominance. He ridiculed his competitors products as overly complex and unreliabe. Sun's new slogan, "The network is the computer," was an effort to diminish the importance of the PC and establish the network-based system Sun favored.

McNealy didn't consider himself to be a visionary or intellectual. He claimed that Sun's strategies were borrowed from other industries. "Our whole concept of the computer as a network device," he told Fortune's Brent Schlender, "is grounded in a business model that was stolen from every other large utility on the planet. You don't have a power-generating plant in your home; you're connected to a power grid."

McNealy's years of criticizing Bill Gates raised Sun's visibility and, in some sense, played on corporate America's fear of its reliance on Microsoft products. Some of these fears led to the Justice Department filing antitrust charges against Microsoft. McNealy claimed that opening competition in the software industry would lead to new innovations and choices for the consumer.

Java Propels the Internet

The Internet has revolutionized the way the world conducts business. McNealy viewed the Internet as the third wave of computing, after the mainframe era and personal computer. Since its introduction in May 1995, Sun has been able to generate excitement over Java, a software language that can run on any hardware or operating system, thus bypassing Microsoft's Windows, which runs 90 percent of the world's personal computers. Sun formed an early alliance with Netscape. When Internet users downloaded Netscape Navigator, they were downloading Java as well.

The idea of Java was so original that few in the computer industry knew how to handle the concept. Soon, companies ranging from IBM to Netscape, and even rival Microsoft, licensed Java. Gates's browser war with Netscape forced him to match the Java feature Netscape used. Industry analyst, Jim Moore, explained to Fortunemagazine, "Sun has suddenly become a thought leader for the whole industry."

Java allowed computer programmers to write a program once and run it without modification on any kind of computer. McNealy, understating the Java strategy, confessed to Fortune's Schlender, "The concept that every computer should be able to speak and understand one universal language that nobody owned was stolen from cavemen who wrote on walls."

McNealy was quick to point out that the hottest Internet companies in the world, Amazon.com, eBay, and AOL, all ran on the network server and Java ideology that Sun had championed since its earliest days. Sun, however, is not willing to rest on its laurels. McNealy explained the company's competitiveness to VAR Business writer Lawrence Aragon, "We run scared, we run nervous, we run anxious, we run paranoid, we run at full speed. But we run for the long term. We don't have a strategy of the day. We have been giving our customers ongoing migration, ongoing enhancements and performance without blowing up their installed base."

Sun, with the Java programming language, has quickly grown into a formidable threat to Microsoft's operating system dominance. Sun has fortified itself for a long battle by forming alliances and partnerships with some of the world's strongest companies, such as IBM, AOL, Royal Philips Electronics, and Intel. Sun has also acquired more than a dozen companies since 1996, using the acquisitions to move into other technologies and consumer products.

"Work Hard and Have Fun"

McNealy, clean cut with a toothy smile, is a self-professed workaholic. He routinely works 80-hour weeks and sets a frenetic pace, which insiders say often leads to "Sunburn." His work ethic is summed up by a favorite one-liner "have lunch or be lunch." McNealy describes the company as "very nervous inside" and he uses that anxiety to constantly reassess where Sun is headed. "The two pillars that we live on are open interfaces and the network computing model," McNealy explained to Computer Reseller News, "The rest of the time, its work hard and have fun."

McNealy's hard-charging leadership has paid off for Sun. The company's 1997 revenues reached almost $9 billion, while its net income jumped 60 percent over the previous year to $762 million. His personal value is estimated to reach $500 million.

Further Reading

Cringely, Robert X., Accidental Empires: How the Boys of Silicon Valley Make their Millions, Battle Foreign Competition, and Still Can't Get a Date, Harper Business, 1992.

Wallace, James, Overdrive: Bill Gates and the Race to Control Cyberspace, John Wiley & Sons, 1997.

Business Week, July 24, 1989, p. 70; January 22, 1996, p. 66.

Computer Reseller News, November 17, 1997, p. 110.

Fortune, October 13, 1997, p. 70, 82; February 15, 1999, p. 84.

Industry Week, December 5, 1994, p. 12.

New Republic, May 9, 1994, p. 6.

Orange County Register, January 31, 1996.

PC Week, May 9, 1994, p. 1.

USA Today, January 19, 1988; April 1, 1996.

VAR Business, February 1, 1999, p. 47.

Washington Post, February 8, 1998.

"Sun Corporate Information," http://www.sun.com (March 1, 1999). □

McNealy, Scott

(1954-)
Sun Microsystems, Inc.

Overview

Scott McNealy is the energetic chief executive officer (CEO) of Sun Microsystems and a champion of alternative computer technology. He specializes in network computers (NCs) as opposed to personal computers (PCs) and hopes that his own Java software will succeed in breaking the near-monopoly of the Windows operating system.

Personal Life

Scott McNealy was born on November 13, 1954, to Marmalee Doris (Noffke) and Raymond McNealy. He grew up in the Detroit suburb of Bloomfield Hills with his two brothers and a sister, while his father worked as an executive for American Motors Corporation (AMC) and then the Chrysler Corporation. His father, who rose to become the vice-chairman of AMC, often engaged his teenage son in discussions about business. He even took him golfing with Chrysler chairman Lee Iacocca.

Although McNealy has an impressive educational background, he was not a model student. After attending Cranbrook Kingswood, a private preparatory school where he served as captain of the tennis team, he earned a degree in economics from Harvard University in 1976. But his initial applications to the graduate business schools at both Harvard and Stanford were met with rejection. Finally, McNealy was admitted to Stanford on his third try. A manufacturing major, he received his Master's in Business Administration (MBA) in 1980 and helped found Sun Microsystems a mere two years later.

Known as brash, fun-loving, and extremely energetic, McNealy enjoys creating catch phrases to explain his business philosophy ("have lunch or be lunch") and strategies ("the network is the computer"). His motto, "kick butt and have fun," sums up his general approach to work. In fact, humor is an important part of Sun's corporate culture; for example, elaborate April Fool's day pranks have become a tradition, with company engineers targeting McNealy and other executives.

McNealy and his wife, Susan, married in 1994 and have a son named Maverick who was born in 1995. Even though he could easily afford more expensive fare (his personal income was estimated at around $1.2 million in 1994), he says that his favorite meal is a double cheese pizza with Bud Light beer. His hobbies include playing golf and hockey.

Career Details

While awaiting acceptance to graduate school, McNealy took a job as a foreman and plant scheduler for Rockwell International at a plastics facility in Ashtabula, Ohio, that produced truck hoods for the company's automotive operations. Anticipating a labor strike, Rockwell officials ordered its employees to work double shifts in order to maintain production. McNealy contracted hepatitis two months into the accelerated schedule and was hospitalized for six weeks. In the meantime, he was admitted to Stanford, prompting him to quit his job and head for California.

McNealy's first job after receiving his MBA was at a tank manufacturing facility owned by FMC Corp of Chicago, Illinois. However, he resigned from his position 10 months later. As he later told a reporter for Fortune magazine, "FMC put me on a strategy team, and I wanted to be a plant manager. I wanted to make something."

In 1981, McNealy was hired as the director of manufacturing for Onyx Systems, a minicomputer company based in San Jose, California. Assigned to improve quality control, he achieved this goal by meeting with employees, talking over the problems they faced, and encouraging them to solve them on their own. Yet he was not quite satisfied with the way his career was unfolding. While his passion for manufacturing had not waned, his commitment to the demands of corporate life was not as strong. In fact, as he once revealed in Industry Week, McNealy dreamed of owning a small machine shop. "If it all worked out," he went on to explain, "I figured my kids would run it someday and I'd get out when I was 45 or 50 years old and play golf."

McNealy's plans underwent a sudden and dramatic change, however, when a former Stanford classmate and engineer named Vinod Khosla invited him to become involved in a new computer company he planned to establish. (The other two partners in the endeavor were product designer Andreas V. Bechtolsheim, also a Stanford graduate, and programmer William N. Joy, a former student at the University of California in Berkeley.) The creation of Sun Microsystems, Inc., in 1982 would soon catapult McNealy into the ranks of an elite group Forbes magazine later dubbed "high tech's new royalty."

Although he knew very little about computers, McNealy accepted his friend's offer and went to work as Sun Microsystem's head of manufacturing. He proved to be highly skilled at his new job, enabling the company to meet the explosive demand for its products that caused sales to grow from $9 million in 1983 to $39 million in 1984.

Soon McNealy was also running the sales department and actively seeking funds to help the operation expand. In 1984, Eastman Kodak Co. agreed to invest $20 million in the company if McNealy were made president. Around the same time, Khosla left Sun and McNealy was named president on a temporary basis. Within a few months, the company's fortunes took off and McNealy, at the age of 30, was named Sun's CEO.

Although he had often vowed never to fall victim to the expectations that had claimed so much of his father's time, McNealy quickly found himself working 80-hour weeks. "I'll never know my kids as well as most people...," he remarked to a Business Week reporter. "But I've also got 15,000 people and $7 billion worth of market value counting on me." As if to underscore his love for his job, he added, "I just wish I didn't have to sleep."

Under McNealy's leadership, Sun has made its name manufacturing computer workstations of the type traditionally favored by sophisticated users such as engineers and scientists. When such computers are linked by a network, their resources are multiplied geometrically, making them more powerful than individual PCs or terminals served by a mainframe computer. McNealy's commitment to network computing really paid off during the 1990s as major business clients turned to the format in increasing numbers. Among the firms Sun supplied with networks for their internal operations were Federal Express, the Gap, AT&T, Universal Card Services, and Charles Schwab.

Network computing has proven to be an important Internet tool as well; in 1996, for example, some 35 percent of World Wide Web servers were Sun machines. (Servers are the machines on which companies tend to install all of the software that run their business.) They have proven to be more reliable, versatile, and powerful than those run by software developed by Sun's competitors, chiefly Microsoft.

In addition, Sun has created two other important products that cater to the needs of Internet users and large businesses. The first and most revolutionary one was Java, a computer language that enables all networked computers to communicate with each other and share applications, regardless of which operating systems they may be using. Unveiled in 1995, Java created quite a stir in the computer industry as enthusiastic programmers contemplated being able to write software that can flow from machine to machine along a network. Furthermore, Sun engineers demonstrated that Java miniprograms (or "applets," as they are called) could jazz up web pages by making it possible to add motion to words and images. Java thus has the potential to generate revenues for Sun in several ways—as a licensed language, as the language used in Sun-authored programs, and as its own operating system.

Sun was also one of the first computer companies to offer a network computer (NC), a disk-less machine especially made for working on the Internet. With an NC, the user's files and applications are stored at a remote location that is accessible via the Internet. However, some critics were less than impressed when NC's were introduced in late 1996. They speculated that such machines were not likely to appeal to the average consumer.

Chronology: Scott McNealy

1954: Born.

1976: Received degree in economics from Harvard.

1980: Received MBA from Stanford.

1982: Cofounded Sun Microsystems, Inc.

1984: Became president of Sun Microsystems, Inc.

1984: Became CEO of Sun Microsystems, Inc.

1995: Unveiled Java computer language.

McNealy is understandably among those who are excited about Sun's future prospects. Others express a hint of caution, noting that even though Bill Gates and Microsoft lag behind Sun in the world of networked computers, it would be dangerous to downplay the threat they pose. "We're not going to make any money on Java, but that's all right," McNealy admitted in OEM Magazine. "We'll make money selling servers and desktops and network-management software. We just want the world to be free from having to write to Windows." Indeed, Sun's sales rose to over $762 million by the end of 1997, apparently disproving the naysayers—at least for the moment.

Social and Economic Impact

With both Java and the NC, McNealy is making a concerted effort to challenge the near-monopoly of the Windows operating system and its maker, Microsoft. He is determined not to become one of Window's many vendors; instead, Sun computers run a customized version of the Unix operating system. As McNealy commented in Forbes, "What we've decided not to do is become a general purpose car dealer, selling Fords, Chevys and Toyotas.... We like the fact that we own our intellectual property; we own our microprocessors and our operating system." The overwhelming popularity of Windows makes this a risky proposition, but McNealy said in Business Week that he wants his company to be "controversial." "If everybody believes in your strategy," he declared, "you have zero chance of profit."

A bona fide workaholic, McNealy has little time or inclination to pursue anything but business. "[He] makes no pretense of being an intellectual or a visionary," Brent Schlender observed in Fortune. "He can't remember the last time he read a book, much less a novel, and he loves to ridicule highfalutin notions about what computers can do for humanity." Nevertheless, Schlender concluded, "He has forced Microsoft to rethink basic aspects of its business and play a little catch-up." For that alone, he stands out in an industry that has seen its share of big names (among them IBM, Apple, and Netscape) take on Bill Gates and Microsoft and lose, sometimes in a very big way. It is a fate that McNealy has no intention of sharing.

Sources of Information

Contact at: Sun Microsystems, Inc.
2550 Garcia Ave.
Mountain View, CA 94043-1100
Business Phone: (415)960-1300
URL: http://www.sun.com

Bibliography

"The Adventures of Scott McNealy: Javaman." Fortune, 13 October 1997.

"An Attention to Detail." New York Times, 8 September 1996.

"Next: Nothing But Net?" Newsweek, 11 November 1996.

"Now, Sun Has to Keep Java Perking." Business Week, 22 January 1996.

"Rich Man, Poor Man." Forbes, 9 October 1995.

"Scott McNealy's Rising Sun." Business Week, 22 January 1996.

"Windows NT—Never!" Forbes, 23 September 1996.

MCNEALY, SCOTT

Scott McNealy is the founder and CEO of Sun Microsystems Inc., the world's largest network computing firm. Sun's Java programming language and network servers account for most of its $14 billion in annual sales. Known for his declaration in the late 1980s that "the network is the computer," McNealy is considered one of the world's most important figures in the development of technology as a whole, as well as in the rise of e-commerce.

After earning his undergraduate degree in economics at Harvard University, McNealy began working on his MBA at Stanford University. In 1982, shortly after his graduate work was completed, McNealy joined forces with Stanford graduate student Andreas Bechtolsheim, and Vinod Khosla to found Sun Microsystems Inc. CAD systems supplier Computer Vision contracted Sun to build a new operating system for its software applications in 1983. McNealy took over as president and CEO in 1984, after Khosla left the fledgling firm. McNealy took Sun public in 1986. By the end of the following year, Sun had emerged as the top U.S. workstation manufacturer. Sales exceeded $1 billion in 1988, and Sun began working with AT&T Corp. to upgrade the UNIX operating system.

Earnings dipped in 1989 as McNealy struggled to manage his firm's explosive growth. To bolster profits, he put in place a plan to develop the Sun OS operating system, a version of UNIX able to run on a wide variety of computers, including those with Intel microprocessors. McNealy also oversaw international expansion into Moscow in 1992 and the development of an enhanced customer support program in 1993. The following year, he refocused Sun on developing Internet access and security tools, including encryption devices, searching applications, and online telephone directories.

In 1995, the Internet revolution began in earnest. As a result, Sun's sales jumped to nearly $6 billion. McNealy made sure his firm was involved in as many aspects of Internet technology as possible. Sun developed Java, an object oriented programming language for the Internet, and McNealy convinced Microsoft Corp. to begin licensing it that year. Sales jumped another 21 percent in 1997. The following year, Sun usurped Hewlett-Packard as the top manufacturer of Unix servers in the United States. It also strengthened its foothold in the Internet software industry by acquiring NetDynamics, a World Wide Web application software maker.

Sales continued to climb, reaching $15.7 billion in 2000. Earnings grew to $1.9 billion. According to a May 2001 article in Fortune, McNealy "rode the Internet craze for all it was worth. Whether it was e-commerce firms, telecommunications service providers, or traditional companies, if there was a Web application to run, the odds were that a Sun computer was running it." However, growth slowed dramatically for Sun when dot-com firms began declaring bankruptcy and information technology spending slowed in the fall of 2000. Fortunately for Sun, McNealy recognized the impending economic downturn and immediately launched modest cost cutting efforts that included curbing travel expenses, reducing the number of new hires, and suspending work on new facilities. As a result, the firm was able to survive the first half of 2001 without laying off employees, a fact which set it apart from competitors like Cisco Systems, which cut roughly 8,500 positions. In 2001, BusinessWeek Online named McNealy as a member of the "e.biz 25," a listing of the 25 individuals most influential in the development of e-commerce early in the twenty-first century.

FURTHER READING:

Nee, Eric. "Sun Microsystems: Life After Dot-Coms." Fortune. May 28, 2001.

"Executive Bios: Scott McNealy, Chairman and CEO." Palo Alto, California: Sun Microsystems Inc., 2001. Available from www.sun.com.

"The e.biz 25: Scott McNealy." BusinessWeek Online. May 14, 2001. Available from www.businessweek.com.

SEE ALSO: AT&T Corp.; Hewlett-Packard Co.; Java; Microsoft Corp.; Sun Microsystems; UNIX