One on One with Jonathan Schwartz, CEO, Sun Microsystems
Tuesday, July 31, 2007
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SUSIE GHARIB: Shares of Sun Microsystems rallied today. Investors reacted enthusiastically to news late yesterday that the computer maker reported a quarterly profit, reversing a loss a year ago and posted its first annual profit in six years. Sun earned $0.09 a share in its fiscal fourth quarter, $0.04 more than estimates. I talked with Sun's CEO Jonathan Schwartz this morning and asked him how he plans to sustain growth and profitability.
JONATHAN SCHWARTZ, CEO, SUN MICROSYSTEMS: Well, certainly you know we're not worried about the future of the Internet. We think it's a pretty large and vibrant marketplace that's going to grow for as long as we're on the planet. And to the extent that our technology is core to the Internet, which it really is, we think there is a huge market opportunity. So the issue on the top line for us is how do we get after that demand. Converting that to earnings on behalf of the shareholders we ran a more efficient shop this year than we did last and we expect to continue that drive for efficiency. Couple the two together, strong top line growth and better bottom line.
GHARIB: But Mr. Schwartz, what is your strategy in the face of very tough competition from the likes of IBM, Hewlett-Packard and even Dell?
SCHWARTZ: On the core technology side, Sun has as a really central element of our technology franchise really one of the most fundamental elements of the Internet is an operating system. We have something called Solaris which runs on HP, Dell and IBM hardware. That is growing very successfully even in those partner hardware platforms. So we think the market is actually more than just a one competitor than versus another. It's a little bit more complex than that. We've got some great innovation that really lets us stand apart.
GHARIB: Let's talk a little bit about demand in the marketplace. I understand that businesses have been spending more money on servers and other technologies. In your view is this a blip or is this a sustained investment?
SCHWARTZ: The market is divided into two, those that see technology as a core, central element of their competitive advantage and those that see it as a cost center. Naturally, those that see it as a cost are going to try to diminish that spending. But the likes of most of our financial services customers, the big search companies, the big Internet companies view it as a weapon. They're going to continue investing because they see a return. We think that category of customer is going to outgrow obviously those that are seeking to limit their investment. We think overall it's going to be a pretty healthy and growing market.
GHARIB: You have a goal of 10 percent on operating margin. How do you balance that goal with your other goal of revenue growth?
SCHWARTZ: Well there is three elements to getting to 10 percent. Obviously we grew 6 percent year over year. We expanded margins as well as we took costs down. So those are the three levers we can play with. And obviously we're going to focus more of our efforts on growth going forward as well as margin expansion while we're continuing to focus on streamlining. But the core of our business is really innovation. We deliver more innovation. We think it's going to be a growing market. We can drive more innovation into that market and get a better return.
GHARIB: Now I know you have set aside $3 billion for a stock buy back. But Sun still has plenty of cash on the books. Are you going to be pursuing any strategic acquisitions?
SCHWARTZ: We have around $6 billion in cash which I think is what you just referred to.
GHARIB: Right.
SCHWARTZ: And that certainly gives us the operating flexibility to go pursue whatever growth opportunities in front of us. And we're going to look organically and inorganically at what we can do to grow. We're somewhat indifferent. We just want to take advantage of the opportunity before us whether it's putting those assets to work or just improving the efficiency of our capital structure. So time will tell. We're always on the lookout for good acquisitions.
GHARIB: Can you tell us a little bit more about Sun's new investor, Kohlberg, Kravis, Roberts, the private equity firm? Is the firm's investment in Sun a bigger strategy maybe to take Sun private?
SCHWARTZ: You know, it's a strategy to welcome an eager investor that thinks they see real value in Sun that wants to hold a significant position. So we're going to work with all such investors. We love having good, long-term stable investors especially those that have large portfolios of companies that spend a lot of money on IT. But look, we're a public company. All series of options are always on the table. We are really focused on growing the enterprise and growing the value of Sun W right now, much more than we're focused on any other activity.
GHARIB: Mr. Schwartz, thank you very much. We appreciate your time.
SCHWARTZ: It's a pleasure Susie.
