Analyst: Sun should spin off Java, cut back on Sparc

A Merrill Lynch analyst, in an open letter to Sun Microsystems Chairman and CEO Scott McNealy, is recommending some drastic steps to get the company back on proper footing.

In his letter, dated Oct. 2, Merrill Lynch's Steven Milunovich recommends Sun de-emphasize its Sparc hardware architecture and focus on the Intel x86 platform, spin off its crown jewel Java programming language, and pass on battling Microsoft on the desktop with the newly announced Java Desktop System, formerly known as "Mad Hatter." 

Java is a technological success, a so-so branding effort and a financial failure, Milunovich said.

"Sun faces a crisis," Milunovich said. The company last week reported a $1.05 lion quarterly loss, characterized by Sun as a non-cash charge to the fourth quarter of its fiscal year 2003, which ended June 30.

"It's necessary to cut expenses to assure profitability and narrow the product focus to re-establish a clear value proposition," said Milunovich.

The company, said Milunovich, must change course or suffer more losses and be acquired for its installed base. Sun should accept being a successful niche company, he said.

"Sun should focus on creating mission-critical systems where it can add value through innovation," Milunovich said. He advises Sun to focus on its Solaris OS and Orion platform, blades, and its N1 networking technology and services.

Sun also should hire a COO and McNealy himself needs a "makeover" in his image, Milunovich said. "Scott's brash personality and contrarian image have been synonymous with the company's image and success. Unfortunately, the act is getting old," said Milunovich.

Sun also needs to become a better partner, said Milunovich. Once-close partners such as BEA Systems have become rivals, he said.

Head count reductions of roughly 5,000 to 7,000 persons are "unavoidable" at Sun, according to Milunovich. The company last month cut approximately 1,000 jobs.

A Sun representative said the company would not comment on Milunovich's specific recommendations.  "We don't comment on recommendations from a single analyst," said Sun representative Michael Hakkert. However, Sun holds an open invitation for Milunovich to meet with Sun officials regarding Sun's progress, Hakkert said.

Sun, although not profitable in its recently concluded fiscal year, did improve gross margins in products and services and has $5.7 billion in securities on hand, Hakkert said.