Q&A: Leslie Stretch, Sun Microsystems UK managing director

Sun Microsystems hopes it has turned a corner. Last month, the company reported its first growth in sales for three years, as well as posting a $795m profit for its fourth quarter, compared with a $1bn loss for the same period last year.

In the UK, the prospects have been even rosier, with a 12 per cent growth in business over the past year and winning its biggest government contract, for the NHS National Programme for IT.

But it took some hard decisions to achieve - Sun was once renowned for its 'go it alone' technology strategy, based around UltraSparc processors and the Solaris operating system. In the last year though, the supplier has signed agreements for AMD's Opteron chips, and to jointly develop its next generation of servers with Fujitsu - as well as concluding a peace pact with long-time foe Microsoft that will see the two companies work to improve product interoperability.

Computing talked exclusively to Sun's UK managing director Leslie Stretch about the company's plans.

What have you done differently in the UK to beat the company's wider performance?

About this time last year we announced a new UK management team, brought in from different parts of the company and a couple from outside, and refreshed the previous team who had held things steady in the downturn.

The UK economy is in better shape than certain European economies, no question. But for me the big changes were around increasing emphasis on software and on public sector. We appointed a government director and a software solutions director for the first time. When you bring in new people they don't see barriers - when you've been in a position for a long time you build up a resistance. You can have more impact when you start in a new job.

And it's been easier than in the previous two years, when we were moving out of the bubble, and trying to make sense of the trough.

Your sales pitch has changed in recent years, from Sparc/Solaris, to also include Linux and AMD chips and shared development with Fujitsu. Was this a recognition that Sun could no longer do it all alone?

It's been a long time in planning in the company - these things have taken years to come to fruition. You have to remember that the operating system layers across the whole thing. From the low end up to the datacentre, everything flows on the operating system.

It's like - some people want a Briggs & Stratton tractor, some have got Hondas. Some have Briggs & Strattons because they're cheap to buy and implement. We've seen year-on-year growth of 327 per cent from Solaris on x86-based servers in the fourth quarter. That take up tells me people are buying an operating system.

If you've got an acre of grass you buy a Briggs & Stratton, if you've got three acres you buy a Honda. That range of products allows us to go into much broader customer situations. If you look at the government contracts we're supplying a much broader range of products.

Your latest results show income and revenue up, but margins down. Has improved sales come from aggressive pricing, or is the market just more competitive?

It's a bit of both. But there's also an impact from deferred revenue - a lot of software we sell is high margin, but US GAAP accounting rules covering the Java Enterprise System require us to not take revenue in the first six months of the contract. That hasn't flowed through into our books yet. And we have more work to do on costs.

It is too early to tell how the changing product mix will affect margins. Two years ago we were faced with predictions of five to 10 per cent reductions in gross margin which hasn't happened, but it's hard to tell how the product mix will affect that.

In the UK we grew Java Enterprise System subscribers from the third to the fourth quarter much faster than Sun overall. Worldwide it's growing 70-80 per cent, but we probably grew several hundred per cent because of some very big deals.

And also the big government contract with the NHS is future revenue - we have to deliver on our commitments before we get the revenue.

Last year, you told Computing that you wanted to improve Sun's relationships with chief executives. Has that been achieved?

I'm still frustrated. We've got better, and we've got better language in the business. We bought a guy in to do our end-user business, and he kicked off an initiative called Business Intelligence, where we've had a lot more help from outside in our dialogue with the business, which has to happen in parallel with the IT department or the outsourcers.

To some extent, whether we have the discussion with the business doesn't matter, as long as somebody is getting the point across on our behalf. But there are some real glaring situations. Areas such as software pricing, identity management, security, anti-virus updates, wireless security, are all big issues chief executives need to be aware of. We can help a lot more there. But these notions are really hard to get across to them.

As an industry, I think we are failing to communicate effectively to chief executives. The industry is a lot better at interfacing with government, and our government is increasingly technology-savvy. But in the private sector it is lagging now.

Are your customers still focused on cost cutting, or are they now starting to plan new projects?

In the UK conditions are definitely improved. I can think of a number of situations that are about new investment. A lot of people are tired of cutting back and are looking at investment in new products. Our financial services business turned a corner this year, it's grown dramatically. Telcos have improved too. The increase in mobile data services for companies is real. There's a lot of that going on. But value for money won't go away, customers know they can get better value for money now.

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