Dawn of the Dead

Road show 2.0: In Minneapolis, David Douglas, Sun’s vice president for “eco-responsibility,” shows off Project Blackbox, a new plug-and-play data center in a shipping container.

Chipper: Greg Papadopoulos persuaded Sun in 2002 to abandon a chip that the company had already spent $500 million on in favor of a radical design that promised to be faster and more energy efficient.

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• A Timeline of Sun Microsystems
  After going public in 1987, Sun became the computer maker of choice for many technologically sophisticated customers, then rode the dotcom wave—and crashed with it. Will the company rise again?

Rumors were flying around Silicon Valley in November 2005 that something intriguing was happening in one of the underground parking garages at Google's world headquarters. The gadfly Robert X. Cringely blogged that the company was hiding a 40-foot-long shipping container "in a secret area off limits even to regular GoogleFolks." The big box looked like the millions of cargo containers that travel the seas on freighters and the freeways on 18-wheelers, but it was said to be a prototype of a new kind of data center that could deploy computer power wherever it was needed. Cringely waxed about the "beauty" of the idea--the kind of ingenious move that we've come to expect from the hottest Silicon Valley company of its time.

But when a cutting-edge data center in a shipping container was announced in October 2006, the company behind it wasn't Google. It was Sun Microsystems. Its Project Blackbox would be available for delivery in 2007.

Sun was the Google of an earlier era. It scored one of Silicon Valley's great successes back in the 1980s and 1990s by engineering high-performance computers for the most technologically sophisticated clients, from top scientists and engineers in academia to quants on Wall Street and leading automakers--not to mention telecom highfliers and Internet startups. Then came the 2001 dotcom crash. Many of Sun's customers were crushed, and others switched to cheaper equipment powered by improved chips from AMD and Intel. Many who'd been paying up for Sun's Solaris software flocked to Linux for free. Sun's stock plunged from $60 a share to less than $3, and the company lost money nearly every quarter for a half-decade. Outside critics and even former executives predicted that it wouldn't survive.

Now, suddenly, the outlook has brightened. Merrill Lynch named Sun its top tech-stock pick for 2007 last December and one of its top-10 picks overall. In late January, Sun reported its first solidly profitable quarter in five years, and Kohlberg Kravis Roberts (KKR) revealed that it was investing $700 million. The following month, TV stock guru Jim Cramer, who said he had "hated" and "despised" Sun, became a convert, touting that big Wall Street banks were once again looking at the company's wares. A few days later, Goldman Sachs analyst Laura Conigliaro upgraded the stock to a buy, predicting that Sun's operating profit target of 10% for 2009 looked more like "a milestone rather than an endpoint." Shares--wallowing at less than $4 last July--have risen 50%, to around $6.

Orchestrating this new dawn is a ponytailed 41-year-old freethinking CEO who uses his own widely read public blog as a management and marketing tool, who talks about working with "co-opitors" instead of railing at competitors, and who has persuaded 18,000 of Sun's 34,000 employees to work from home--not just as a money-saving tactic (Sun has been able to close two Silicon Valley campuses, trimming $70 million in expenses last year), but also to slim the company's environmental footprint. Jonathan Schwartz, who took over as chief executive from the combative and colorful Scott McNealy a year ago, even shares his personal office with Sun's chief financial officer, Mike Lehman. (Colleagues describe the roommates as the "odd couple," with Schwartz cast as Oscar.)

Schwartz is not a newcomer; he has been at Sun since the company bought his software startup in 1996. But he has brought a new style since replacing McNealy in April 2006. "McNealy had speechwriters to help him bash everyone," says Laura McLellan, an analyst at the Gartner Group. "The first week that Schwartz was CEO, he got on the phone and talked to the CEOs of Intel, Dell, Hewlett-Packard, IBM, and Microsoft, and said, 'Look, this is going to be a new and different company, and we think that collaboration and coalitions are going to make everyone more successful.'" Schwartz launched his blog back in 2004, when he was president, "from a desire not to be invisible when the share price was at a historic low." The blog now attracts more than 100,000 readers a month in 11 languages. The KKR infusion was his idea, too--not because Sun needed the cash (the company had $4 billion on hand), but because it was a way to build confidence among investors on Wall Street.