Sun’s McNealy Still Wants to Play Hardball
To blow off steam, Sun Microsystems Inc.’s Chief Executive Scott McNealy often rents an ice rink to play a rough-and-tumble game of hockey with a gang of other transplants from the East.
Those who know him well say McNealy conducts business much like he plays hockey. “He tends toward the brute-force approach,” says an executive who has both worked and played with McNealy.
Sun’s negotiations to buy its troubled Silicon Valley neighbor Apple Computer Inc. have been vintage McNealy, say those who have watched him in action. When Apple had a moment of weakness, McNealy moved in swiftly and forcefully, leaving his opponent momentarily stunned.
Still, Apple has for now rejected Sun’s low-ball bid--which sources say was in the mid-$20-a-share range, well below Apple’s current market price--and McNealy is without a prize he greatly covets. “It’s dead,” said a person familiar with the negotiations. “You can never say never, but I’d be awfully surprised to see it back on.”
Investors who fear Apple could end up being an anchor for highflying Sun were pleased that the talks have broken down, at least for the moment: Sun’s stock rose $2 to $44.25 in Nasdaq trading Monday, while Apple’s closed down $1.50 at $29.125, also on Nasdaq. In other bad news for beleaguered Apple, Standard & Poor’s downgraded the Cupertino, Calif., computer maker’s $300 million in debt to junk status, citing expected losses, uncertain strategic direction and management turmoil. And PC Week Online reported that Apple has frozen new spending in research and development.
For the 41-year-old McNealy, whose boyish looks and self-deprecating humor mask big ambitions, a deal with Apple would instantly transform his company into one of the biggest and most influential. Sun made its mark selling desktop computers to scientists and engineers, and recently has been successful with servers that store and route Internet data. Sun’s Java software language is the hot new tool for creating Internet programs, and that could help Sun sell even more servers.
But McNealy has always wanted Sun to be much more than a niche supplier of specialized computers. In the late 1980s, Sun took a couple of unsuccessful stabs at designing a personal computer, and some believe the company still needs to get into that market somehow if it’s to defend the turf it has already won.
“If Sun gives up the desktop, it’s only a matter of time before those [Microsoft] Windows and Intel machines move upward and replace the Sun server,” said a former Sun executive.
And a move into the mainstream PC business would give McNealy, who has always been in the shadow of better-known computer industry executives such as Microsoft’s Bill Gates and Apple co-founder Steve Jobs, a lot more stature.
“This would be good for Scott’s ego,” a former Sun executive said. “It would be a way for him to stick it to Microsoft and Gates. At this point, some of that stuff has gotten to be personal.”
In the late 1980s, Microsoft and Sun were negotiating an agreement to put the PC software firm’s popular Windows graphical interface software onto Sun computers. But the deal fell apart because McNealy was loath to pay Microsoft--a competitor--a licensing fee, the executive said.
“At the end of the day, Scott and Bill got into a hassle over it,” he said. “There was a lot of animosity over that one.”
McNealy’s antics--he’s quick with the one-liners and loves practical jokes--also mask a shrewd approach to business. Although he badly wants Apple, he will not pay a nickel more than he thinks it is worth.
The son of a former vice chairman of now-defunct American Motors Corp., McNealy downplays his privileged upbringing, which included a Detroit prep school, Harvard and business school at Stanford. Instead, he prefers to play the part of “Joe Six Pack.” Go to McNealy’s modest home for cocktails and he is likely to serve you a Budweiser rather than 12-year-old Scotch or fine California wine. Dinner with fellow executives is often pizza at a local tavern.
McNealy revels in the work-hard, play-hard Sun culture, and recent fatherhood does not seem to have slowed him down. Those who have worked for him marvel at his ability to motivate employees.
“Scott is a guy who leads from the front,” said a former Sun executive. “People know that he would never ask you to do anything he wasn’t willing to do himself.”
He is known to go from an after-work hockey game to the airport for a flight to see a customer a continent away. The company’s frantic pace is said to cause “Sun burn,” an insider term for burnout--co-founders Vinod Khosla and Andreas Bechtolsheim both fell victim to it--but McNealy seems unfazed.
Perhaps he was born to it. Family dinners had young Scott discussing business with his father and family friends such as former Chrysler chief Lee Iacocca, helping to prepare him for the pressures of running a company. When Sun had its first serious crisis six years ago--its computer systems failed so it was unable to process millions of dollars in orders--McNealy was able to get the business back on track.
Sun and Apple have conducted merger talks on and off since the late ‘80s, said a former Sun executive who sat in on two rounds of negotiations, and the latest round of talks between Sun and Apple began in September. Back then, Apple was enjoying a brief respite from the problems that have plagued it for nearly two years. Plants were efficiently pumping out new Macintoshes and the machines were selling briskly. That quarter, Apple gained market share over its competitors even though archrival Microsoft had released its vaunted “Mac Killer” software, Windows 95, in August.
McNealy bided his time. Two weeks ago, Apple posted a $69-million loss for the quarter ended Dec. 29, traditionally the best for PC makers, and, predictably, its stock tumbled. Suddenly, the talks that were characterized as “conversations, nothing more,” according to a source, assumed an air of urgency.
Late Tuesday, McNealy thought he had a deal, Sun insiders said. A mandatory meeting of the executive team was called for 8 a.m. Wednesday at Mountain View, Calif., headquarters. “He wanted to discuss how Apple was going to be carved up,” a Sun source said. “He really thought he had them over a barrel--that they had to accept the offer.”
But Apple, which had been mulling the offer at its headquarters less than 10 miles away, decided no deal. Apple Chairman Armas C. Markkula Jr. “really has mixed feelings about selling,” said a source close to Apple. McNealy’s mid-$20 offer was far less than Apple’s recent trading price.
“There were people on both sides who are not in favor of this deal,” said another person familiar with the negotiations.
McNealy late Friday told reporters he had little more on his mind than preparing for the AT&T; Pro-AM Golf Tournament. Underlying his joking was a clear message: It was a take-it-or-leave-it offer.
Although McNealy may have dropped his plans for Apple, he hasn’t altered his ambitions. On Monday, Sun showed a prototype of its own low-cost terminal for surfing the Internet, and if that doesn’t take off, analysts say, Sun will continue to search for ways to broaden its base.
