| May 29, 2004 Below are the latest worldwide server revenue and shipment data (calendar quarter) released by Gartner. Server Revenue Q104 Q103 %Change
Server Units Shipped Q104 Q103 %Change
ANALYSIS 1. Sun's percentage increase in units shipped was just slightly below the worldwide average. 2. Sun was the only vendor in the top 5 to have decreased server revenue. 3. DELL's market share increased from 20.2 to 21.9 4. HP's market share decreased from 29.1 to 27.4 5. IBM's market share remained about the same at 15% 6. Sun's market share remained about the same at 4.9% 7. HP's average server price decreased from $8100 to $7000 8. DELL's average server price decreased from $3800 to $3500 9. IBM's average server price increased from $16900 to $15500 10.Sun's average server price decreased from $23000 to $15600 CONCLUSIONS 1. The server marketplace had significant growth in volume. 2. There is fierce price competition among the vendors. 3. The vendors are playing a market share game, using price reductions as the key strategy. 4. With only a 5% share, Sun is an irrelevant player in the game. 5. In order to just maintain market share Sun cut its average server price 32%, obviously significantly reducing the profit margin. 6. Since servers accounted for 45% of Sun's revenues during the quarter and Sun is being squeezed at the high-end by IBM and at the low-end by DELL, Sun's overall revenue and profits will continue to be significantly impacted by trying to compete in the server marketplace. 7. Sun is not competitive in the server marketplace. 8. HP is losing market share to DELL and will have to continue aggressively cutting prices to try to stop its bleeding. These conclusions define one of the most critical problems facing Sun. I will be contacting Scott McNealy about Sun's strategies to fix this problem. May 31, 2004 I wrote the following OPEN LETTER to Scott McNealy and released it to the press. Scott, The information following this message was posted on the www.thesunalsosets website. As a stockholder, who is very troubled by your management and leadership which has resulted in Sun being ranked last in Barron's latest ranking, I ask you: 1. What is your vision for Sun in the server marketplace and what is your strategy to achieve that vision? 2. In your 2003 Letter to the Stockholders you state, "Fiscal 2003 was a year of hard work and progress. We're not yet where we want to be, but we believe our vision and strategy will take us there." Do you still believe in that vision and strategy? Is that the same vision you had in 2001 and 2002? How long will it take to get there? 3. Later in that Letter to the Stockholders you wrote, "Clearly, market conditions were once again challenging, but our team has positioned the company well for fiscal 2004 and beyond." Was this just another attempt to deceive stockholders? What was the basis of this statement? 4. After having been the marketplace leader in the past, why is Sun now an irrelevant player? 5. You and other Sun executives have indicated in the past that Sun's problem was due to the downturn in IT spending. Since it seems that IT spending has increased, why is Sun's revenue from servers down 12.5%? 6. Sun's 2002 and 2003 Annual Reports stated that the company made a $1.8B investment in research and development each year. Why has that investment not turned into increased revenue? If you respond, I will post your response on the website. If you do not respond, it will reinforce my belief that you do not have a viable vision and strategy and your past statement that "our team has positioned the company well for fiscal 2004 and beyond" was just an attempt to deceive Sun stockholders. Regards, Robert Bolton June 3, 2004 It has been reported that Sun plans to use subscription models to fight Linux. Linux is one of the fastest growing operating systems in the IT industry. According to market research firm IDC, Linux is projected to grow at a compounded annual growth rate of 14% through 2007. This trend is confirmed by Forrester Research, which found that 72% of 50 respondents at $1 billion+ companies are planning to increase their Linux usage over the next two years. The Forrester survey also found that more than half of the interviewees planned to replace other operating systems with Linux. According to CIO Research, 64% of 375 companies surveyed are using open source, with a key driver being lower total cost of ownership (TCO). CIOs say the greatest benefits from using open source are lower total cost of ownership, lower capital investment and greater reliability and uptime compared to their existing systems. In an interview during a Q&A session at Forrester Research's technology and finance conference in May, 2003, McNealy said, "Should we have done Linux (for) Solaris two years ago? Guilty," My questions are: 1. Why did Sun miss the Linux opportunity in 2001? Is this just an example of the lack of leadership of the CEO? 2. Is marketing a software subscription like putting perfume on a pig (Solaris)? Isn't Solaris still proprietary software? 3. The CEO admits he is guilty, but the stockholders and employees are punished. Why has the CEO not been punished? June 6, 2004 Below are the latest worldwide storage systems revenue data (calendar quarter) released by IDC. Total Disk Storage Revenue Revenue Share Q104 Q103 %Change Q104 Q103 Change HP $1.18B $1.26B -6.4% 23.2% 25.6% -2.4% IBM $1.00B $903M 10.7% 19.7% 18.4% 1.3% EMC $707M $561M 26.0% 20.2% 17.0% 3.2% DELL $351M $296M 18.6% 6.9% 6.0% 0.9% Hitachi $348M $335M 3.9% 6.8% 6.8% 0.0% Sun $309M $325M -5.0% 6.1% 6.6% -0.5% External $3.5B $3.29B 6.9% Storage Revenue Total Disk $5.09B $4.91B 3.5% Storage Revenue Note - EMC's revenue share is based on External Storage Revenue; others are based on Total Disk Storage Revenue. CONCLUSIONS 1. External Storage Revenue is grew twice as fast as Total Disk Storage Revenue. 2. EMC is the fastest growing Storage vendor. 3. HP and Sun lost revenue share, most likely to EMC. My questions are: 1. What is Sun's vision in the disk storage marketplace and what is your strategy to achieve that vision? 2. Why did Sun's Storage revenue decline 5% at a time when the total revenue in the Storage market increased 3.5%? 3. Why is Sun losing market share to EMC? June 8, 2004 CBS MarketWatch reported that at a conference to exchange views of new developments surrounding "all things digital", Carly Fiorina, chairwoman of Hewlett-Packard, in response to a question about Sun's recent problems, suggested the company has much work to do to regain confidence. "Many customers believe their viability is in jeopardy ... customers should worry about that," she said. My questions are: 1. Does this read like a sound bite from this website? 2. Can customers regain confidence as long as McNealy is CEO? June 8, 2004 According to the 2003 CY Financial Disclosure Report, which is required by the Ethics in Government Act of 1978, Supreme Court Justice Sandra Day O'Connor sold Sun Micro stock for a loss on December 9, 2003. My questions are: 1. Did Justice O'Connor's confidence in Scott McNealy play a key part in her decision to sell at a loss? 2. Did she give up hope that Sun would recover from the disastrous stock performance over the past three years? June 15, 2004 SMRC Inc. issued the following Press Release today. I have contacted SRMC and made them aware of this website. S.M.R.C Inc. LLC charges Salomon Smith Barney with unsuitable trading Tuesday June 15, 10:00 am ET NEW YORK, June 15, 2004 (PRIMEZONE) -- Stock Market Recovery Consultants Inc. LLC (S. M.R.C.) today filed an N.A.S.D Arbitration case on behalf of an Investor who was misled by Salomon Smith Barney arising from unsuitable trading in the following stocks: Sun Micro Systems Inc. (SUNW), Motorola (MOT), Info Space Inc.(INSP) and CMGI, Inc.(CMGI). If you were a victim of unsuitable trading, you have up to six years to file an NASD Arbitration case. In order to file an NASD Arbitration Case, you must meet certain requirements. If you wish to review a copy of this complaint, to discuss this action or have if you have any questions, please contact Benjamin Lapin of Stock Market Recovery Consultants at (718) 677-1540, (888) 539- 3788 or ben.lapin@verizon.net. S.M.R.C is acknowledged as one of the premier Consulting Firms in the area of Securities Arbitration, fighting for the rights of the victims of securities fraud, unsuitable trading, breach of fiduciary duty and broker misconduct. The Firm has recovered numerous dollar damages awards on behalf of individuals. Contact: Stock Market Recovery Consultants Benjamin Lapin (718) 677-1430 (888) 539-3788 ben.lapin@verizon.net June 19, 2004 On June 16, 2004, Scott McNealy filed a Form 4 with the SEC indicating he has entered into an agreement to sell 2,000,000 shares as soon as permitted by applicable securities laws and Sun Microsystems, Inc. stock trading and market communications policy. My questions: 1. Why is the CEO selling? 2. Does he have confidence in the company's future? 3. What does he know that we don't? June 20, 2004 IDC is estimating that, in 2007, Windows servers will surpass Unix servers in revenue market share for the first time. IDC is also estimating by 2008, servers based on Linux will represent 29% of all unit shipments and $9.7 billion in spending. While Windows and Linux are growing, there is still significant investment in Unix. But, IDC estimates that Unix will decline as a percentage of overall server spending. The Unix market share will continue to be hurt by the increase of cheaper Linux systems and the increasing power and capability of systems based on Windows software and Intel processors. My questions: 1. Unlike IBM and HP, why is Sun only competing in the Unix market, the declining market? 2. Can Sun compete profitably in the Unix maket? 3. Again, I ask what is McNealy's vision for Sun in the server marketplace and what is his strategy to achieve that vision? June 28, 2004 Sun Microsystems, Inc. , today announced that Stephen Bennett, 50, president and chief executive officer, Intuit Inc., has been elected to Sun's board of directors, effective immediately. Scott McNealy said "Sun's board combines independence with depth of experience. Steve's leadership and operational experience as a successful CEO, as well as his proven track record of developing and growing diverse businesses, will complement Sun's strong and experienced board. Sun's employees and shareholders should be delighted." My questions - 1. If Sun's board has "independence", why is Scott NcNealy still CEO? 2. What has Sun's "strong and experienced' board been doing, while McNealy led the company to the bottom of Barron's list? June 30, 2004 On June 28, Fujitsu Limited and Microsoft Corp. announced a major expansion of their global alliance in Windows® platform enterprise infrastructure and application solutions focusing on the Microsoft® .NET Framework and .NET Enterprise Servers. Utilizing their deep experience and comprehensive expertise in business-critical enterprise systems and solutions, the companies will build on their previous collaborative efforts in Japan and other regions by launching new global-scale joint initiatives focused on XML Web services, business-critical computing and mobility. In addition, through the expanded alliance with Microsoft, Fujitsu’s principal IT platform, consulting and services units and affiliates — including Fujitsu Technology Solutions Inc., Fujitsu Siemens Computers, Fujitsu Consulting and Fujitsu Services — will be combined into a unified corporate alliance structure. This consolidation will help position the Fujitsu Group as a leading one-stop source of end- to-end .NET enterprise solutions worldwide. My question - Will this expansion of Fujitsu's global alliance with Microsoft impact the recently announced Fujitsu expanded partnership with Sun? July 20, 2004 I wrote the following OPEN LETTER to Scott McNealy and released it to the press. Scott, In an article in San Francisco Chronicle on June 30, 2004, titled McNealy bullish on Sun's future, you were quoted as saying "Pay attention to the June quarter for year-over-year unit volume." The speech was given at the Sun's annual JavaOne software developer conference at the Moscone Center in San Francisco. According to the article, you noted the number of servers sold has been rising in each of the three previous quarters and hinted the trend may be continuing. As a Sun stockholder, who is very concerned about your candor, I ask you - 1. Considering the fact that you filed an SEC form 4 on June 18, 2004, indicating you "entered into an agreement to sell these [2,000,000] shares as soon as permitted by applicable securities laws and Sun Microsystems, Inc. stock trading and market communications policy", were you disingenuous in leaving the impression that you are bullish on Sun's future? 2. Do you plan to send a letter to the newspaper, correcting the article? 3. It is noteworthy that you sold in 560,000 shares in 2002 and 1,600,000 shares in 2003. If you are bullish, why are you selling Sun stock, rather than buying it? 4. I have been told that you have said at meetings with Sun employees that you consider it disloyal for Sun employees to sell stock. These meeting were just prior to your selling stock. Do you have an explanation for this hypocrisy? 5. Since you have already agreed to sell 2,000,000 shares as soon as you can, was the statement - "Pay attention to the June quarter for year-over-year unit volume" an attempt deceive Sun stockholders and potential stockholders prior to the earnings announcement? If you reply, I will publish your response on my website. Regards, Robert Bolton July 8, 2004 I wrote Jeff Boldt, a spokesperson for Sun. It appears Diane Carlini is no longer with Sun. If you know what happened to Diane, please let me know. Jeff, I was told by one of my sources that the Fidelity computer center in Merrimack, NH is replacing Sun with HP and IBM servers running Linux. As one of many concerned Sun stockholders, I ask you the following questions. 1. Can you verify or deny that the statement is true? If true, please answer questions 2 through 5. 2. Why is Sun losing to competitive servers running Linux? 3. Did Sun compete for the server business at Fidelity? If yes, what was Sun proposed solution? 4. Generally speaking, does Sun have a strategy to compete against servers running Linux? 5. Does Sun have any references of competitive wins against IBM or HP Linux solutions? If so, please name the references. If you reply, I will post your response on my website? Regards, Robert Bolton July 17, 2004 I wrote the following letter to Scott McNealy. Scott, In a recent interview with BusinessWeek you were asked, "do you think customers are happy now?" You answered, "I'll tell you what, I apologize to my shareholders that I went and got the customer happy first, got the channel happy, before I went off and got the return. And by the way, all the while we were generating massive cash flow from operations and other activities like the Microsoft deal, so it isn't like I've been [squandering] my shareholder assets." As a Sun stockholder, who is very concerned about your leadership, I ask you the following questions: 1. Considering the fact that Sun has been losing and continues to lose its customers to competition, aren't you being disingenuous in speaking of happy customers? 2. You mentioned "massive cash flow from operations and other activities like the Microsoft deal." The stock is down to $3.70 from $15.77 on July 2, 2001. So, how are the shareholders benefitting from the massive cash flow? I think the shareholders want a CEO, who can turn assets into profits - someting you have not been able to achieve the past 3 years. Regards, Robert Bolton July 21, 2004 Sun released the following earnings statement. SUN MICROSYSTEMS REPORTS PRELIMINARY PROFIT; REVENUE AND SERVER UNIT GROWTH IN FISCAL FOURTH QUARTER SANTA CLARA, Calif. - July 20, 2004 - Sun Microsystems, Inc., (NASDAQ: SUNW) reported results today for its fiscal fourth quarter and full fiscal year, which ended June 30, 2004. Revenues for the fourth quarter grew to $3.110 billion, an increase of 4.3 percent as compared with $2.982 billion for the fourth quarter of fiscal 2003. Total gross margin as a percent of revenues was 39.4 percent, a decrease of 4.3 percentage points as compared with the fourth quarter of fiscal 2003. Net income for the fourth quarter of fiscal 2004 was $795 million or $0.24 per share as compared with a net loss of $1.039 billion or a net loss of $0.32 per share for the fourth quarter of fiscal 2003. Cash generated from operating activities was $2.172 billion for the quarter, and the balance of cash and marketable securities was $7.608 billion. For the full 2004 fiscal year, Sun reported revenues of $11.185 billion, a decline of 2.2 percent as compared with $11.434 billion for the full 2003 fiscal year. Total gross margin as a percent of revenues was 40.4 percent, a decline of 2.8 percentage points as compared with the 2003 fiscal year. The net loss for fiscal year 2004 was $376 million or a net loss of $0.11 per share as compared with a net loss of $3.429 billion or a net loss of $1.07 per share for the 2003 fiscal year. Results reported today include $1.6 billion of other income, and $350 million in deferred other income related to the Microsoft settlement. Sun has sought confirmation of certain aspects of its accounting relating to this settlement from the Securities and Exchange Commission. Financial results are pending final resolution of these matters. Steve McGowan, Sun's chief financial officer and executive vice president, corporate resources, said, "We're pleased we grew revenue in fiscal Q4 based on consistent demand throughout the quarter across geographies and products. We're also pleased that we generated $2.2 billion in cash from operations in fiscal 2004 and ended the year with a cash and marketable securities balance in excess of $7.6 billion. This marks the 15th consecutive fiscal year that Sun has generated positive cash flow from operations." "Delivering growth and preliminary profits in Q4 is a great way to end the year, with 46% server unit volume growth year-over-year and a sequential increase of 18%," said Scott McNealy, chairman and chief executive officer, Sun Microsystems, Inc. "We enter the new fiscal year with a strong balance sheet, the strongest product and services portfolio in our history, and the largest developer and partner communities we've ever had. We're delivering innovations based on some of the industry's most coveted technologies, SolarisTM OS and JavaTM platform, running on industry standard SPARC®, AMD Opteron and Intel Xeon processors. In fiscal 2005, we're focused on growing revenue and market share, generating cash, achieving sustained profitability, and rewarding long-term shareholders." "Let's start putting some questions to rest," said Jonathan Schwartz, president and chief operating officer, Sun Microsystems, Inc. "With the 74% sequential increase in Java Enterprise System subscribers, now totaling 303,000, we've made progress in both monetizing Java technology and driving long-term savings for customers. In addition, Solaris OS volumes and OEM support on industry standard AMD and Intel platforms grew at an accelerated pace, with a 25% increase in Solaris x86 registered licenses to almost 1.1 million and a 69% sequential increase in Software Express for Solaris x86. We are now unquestionably on the offensive, with powerful resources at our disposal, and an excellent product calendar." July 21, 2004 On July 20, in after-hours trade on the INET after the announcement, Sun shares first fell slightly, then rebounded to $4.13. In regular trade on the Nasdaq, the stock rose 17 cents to $4.11. The next day the stock opened at $4.18, but after the report was analyzed, Sun stock fell 7.8% to 3.79 at the close of the day. My questions are: 1. Sun included the following statement in its report. Results reported today include $1.6 billion of other income, and $350 million in deferred other income related to the Microsoft settlement. Sun has sought confirmation of certain aspects of its accounting relating to this settlement from the Securities and Exchange Commission. Financial results are pending final resolution of these matters. Why did Sun not get prior approval from the SEC before including the other income in its report? 2. Why did the stock market react so negatively to the earnings report? Was it because excluding the "other income", Sun loss 5 cents per share. 3. Why did the total gross margin decrease 4.3%? Did Sun have a fire sale? July 25, 2004 Below is a summary of the stock price percent change of Sun Microsystems, its major competitors, stock indices, and other technology companies the past three years. Sun Microsystems -73.03 COMPETITORS
STOCK INDICES
OTHER TECHNOLOGY COMPANIES
Consider the following questions. 1. What is the message that the stock market is trying to tell the Scott McNealy and the other members of the Board of Directors? 2. Why don't they get message? 3. How did DELL and Cisco increase their stock prices over the last 3 years? Were thes companies just lucky? Was executive leadership critical? 4. What are the key leadership characteristics of the DELL and Cisco top executives that are lacking in Sun executives? July 29, 2004 I wrote Scott McNealy about the recent layoffs. OPEN LETTER TO SCOTT MCNEALY Scott, I have been told by several sources that there were layoffs at Sun on July 27, 2004. As a stockholder, who is very concerned about your leadership, I ask you the following questions. 1. Can you confirm or deny that there were layoffs at Sun on July 27, 2004? 2. If there were layoffs, why were they not publicly announced? 3. Thinking back about the reported $795 million net income last quarter, why is Sun reducing its workforce? 4. Are the layoffs an indication that the earnings announcement earlier this month was not as forthright as it should have been? 5. Isn't information about RIFs critical to Sun investors and potential investors in order to make an informed decision about Sun? Regards, Robert Bolton August 8, 2004 On August 6, 2004, Forgent(TM) Networks (FORG) announced that its wholly owned subsidiary, Compression Labs, Inc., has initiated litigation against Sun Microsystems and 10 other companies for infringement of United States Patent No. 4,698,672 (the '672 Patent) in the United States District Court for the Eastern District of Texas, Marshall Division. Forgent has created a diverse portfolio of intellectual property such as data compression, video mail, videoconferencing, video call scheduling, and many others. The '672 Patent relates to digital image compression, and fields of use include any digital still image device used to compress, store, manipulate, print or transmit digital still images such as digital cameras. However, the '672 Patent extends beyond digital cameras and includes many digital still image devices such as personal digital assistants, cellular telephones, printers, scanners, and other devices used to compress, store, manipulate, print or transmit digital still images. Forgent has the exclusive right to license and enforce all the claims under the '672 Patent in all fields of use involving digital still image compression. My questions - 1. What Sun products are involved? 2. What are Sun's financial risks? 3. Does Sun have adequate processes and procedues to ensure the company is not infringing on the intellectual property assets of other companies? August 12, 2004 It appears Lynn Turner is no longer with Colorado State University. If you know what happened to Mr. Turner, please let me know. August 13, 2004 Following are the insider trading activity in August: Date Insider Shares Transaction Value 9-Aug-04 MCNEALY, SCOTT G. Chairman 1,300,000 Sale at $3.51 - $3.54 per share. $4,583,0002 9-Aug-04 BARKSDALE, JAMES L. Director 250,000 Purchase at $3.47 - $3.52 per share. $874,0002 6-Aug-04 MCNEALY, SCOTT G. Chairman 1,026,895 Private Sale at $3.47 - $3.49 per share. $3,574,0002 6-Aug-04 MCNEALY, SCOTT G. Chairman 2,473,105 Sale at $3.50 - $3.57 per share. $8,742,0002 6-Aug-04 BARKSDALE, JAMES L. Director 90,000 Purchase at $3.52 - $3.6 per share. $320,0002 6-Aug-04 MCNEALY, SCOTT G. Chairman 4,800,000 Option Exercise at $1.043 per share. $5,006,400 5-Aug-04 BARKSDALE, JAMES L. Director 260,000 Purchase at $3.77 - $3.79 per share. $983,0002 My questions - 1. Why is McNealy selling? 2. Why is Barksdale buying? 3. What do they know that the typical investor does not know? 4. What scenario makes sense for McNealy to be selling and Barksdale to be buying? August 21, 2004 According to my sources, Sun has indefinitely postponed its annual Sun Network conference. For the past two years, the conference was held in San Francisco in September. My questions - 1. Why did Sun indefinitely postpone the conference? 2. Were Sun's business partners consulted prior to the decision to indefinitely postpone the conference? If not, why not? 3. Is Sun concerned about the impact on its partners? 4. What message does this send to Sun's customers? August 25, 2004 Below are the latest worldwide server revenue and shipment data (calendar quarter) released by Gartner. Server Revenue Q204
Server Units Shipped Q204
September 4, 2004 In response to a CBS MarketWatch article titled Insider buying shows strength in August. I wrote the following letter to Dan Gallagher, the writer. He wrote me that he was not aware of this information when he wrote it. To his credit, he updated the article immediately. Dan, McNealy unloaded 4,800,000 options in August. These options had an expiration date of Febuary 2005. So, he did not have to sell them in August. My point is his dumping of all those shares seems to contradict the point of your article and misleads Sun investors. You should not have used Sun as an example unless you report the full story. Now that you have reported it, you should report this information as an addition or correction, even if it was not noticed by Thomson researchers and others. As a reporter, isn't it your responsibility to make sure you do not mislead your readers - many of whom are Sun investors? This issue reflects on your credibility and the credibility of CBS MarketWatch. Regards, Robert Bolton September 13, 2004 The Rochester Democrat and Chronicle reported that a Kodak $1 B suit alleging that Sun Microsystems Inc. used technology belonging to Kodak when it developed Java is scheduled to begin jury selection today. The suit involves three patents that were part of Kodak's $260 million acquisition of the business software unit of Wang Laboratories Inc. in 1997. Kodak claims that Wang researcher Dana Khoyi and his team developed an approach that allows computer programs to "ask for help" from other programs when needed. "That is, bringing the right pieces to life at the right time," Kodak says in a court filing. Sun claims in court filings that Java does not infringe on Kodak's patents. To repeat my question after the Forgent(TM) Networks lawsuit, I ask "does Sun have adequate processes and procedues to ensure the company is not infringing on the intellectual property assets of other companies?" September 16, 2004 I wrote Scott McNealy about the recent layoffs. OPEN LETTER TO SCOTT MCNEALY Scott, The AP reported this week that Sun Microsystems Inc. reduced its net income by $12 million for its 2004 fiscal fourth quarter, citing new information related to property leases and the finalization of the accounting for its settlement with Microsoft Corp. The change will reduce the company's earnings for the period ended June 30 by a penny per share, according to a filing with the Securities and Exchange Commission. In September, 2003 Sun announced a $1.05B restatement of its 2003 fiscal fourth quarter results. As a stockholder, who is very concerned about your management of the company, I ask you the following questions. 1. Did Sun deceive investors when it published its 2004 fiscal fourth quarter earnings report? 2. Considering the fact that Sun has a former SEC employee on the audit committee of its board, why did this restatement of earnings happen? 3. Is Sun using the practice of earnings restatements as a tool to deceive investors? If you respond, I will post your response on my website. Regards, Robert Bolton, Editor September 22, 2004 Jonathan Schwartz said Tuesday at a product launch that Sun “didn't listen” to customers in recent years when developing products. “You came a-knockin', and we didn't have much to deliver,” he told attendees. He said the company has changed its ways is focused on "getting back to our roots" and responding to customers' needs. My questions - 1. Were his remarks an indictment of McNealy's leadership during recent years? 2. Is McNealy now merely a "potted plant" and has Schwartz replaced McNealy as the key Sun leader? 3. If not its customers, what was McNealy's focus during recent years? 4. Why did it take so long; why did so many employees have lose their jobs; and why did so many investors have to lose so much money before the company has its ways to focus on getting back to its roots and responding to customers' needs? 5. Why has the Sun board not replaced McNealy as CEO? October 4, 2004 According to the Rochester Democrat and Chronicle, Sun won the Java lawsuit against Sun. The jury in Rochester decided on Friday that Sun infringed on technology belonging to Kodak when it developed and introduced Java more than a decade ago. Eastman Kodak Co. will return to U.S. District Court next week to seek $1 billion in damages from Sun Microsystems Inc. now that a federal jury has ruled in its favor in a dispute over the Java. October 4, 2004 I wrote Scott McNealy about the Kodak lawsuit. OPEN LETTER TO SCOTT MCNEALY Scott, On October 1, 2004, a jury ruled in favor of Kodak in its Java suit against Sun Microsystems. Kodak is seeking $1.06 billion in damages from Sun. Sun and Kodak will return to court next week for the next phase of the trial, in which the jury will hear testimony to help it determine how much Kodak should be paid. When the suit was filed, Sun issued the following press release and posted it on its website. February 12, 2002 -- Sun Microsystems, Inc. was informed late yesterday by Eastman Kodak Company that Kodak had filed a lawsuit in the US District Court for the Western District of New York, alleging patent infringement against Sun with respect to aspects of Sun's Java technologies. Based on discussions over many months with Kodak, Sun believes that this suit is without merit, and, accordingly, will defend itself vigorously and is confident that it will prevail. As a stockholder, who is very concerned about your leadership and candor, I ask you the following questions. 1. Why has Sun not posted any information on its website about the jury's verdict? 2. Why did Sun post information immediately after the lawsuit was filed, but has not posted any information now that Kodak has won the lawsuit? 3. What is Sun's explanation of why the company is not keeping its investors informed of the status of the lawsuit in a timely fashion? 4. Is this another example of Sun's attempt to deceive the investors by not informing them of the status of the lawsuit? Regards, Robert Bolton October 8, 2004 Sun agreed to pay Kodak $92 million to settle the Java lawsuit. October 13, 2004 Regarding the latest editorial, one reader wanted to know why I did not ask Ms. Villarreal if Sun deceived employees [who are also stockholders] by giving them stock options and laying them off while Scott McNealy has cashed millions in stock options during the time that the company has been unprofitable? That is a great question and I will follow up with her. October 20, 2004 I wrote Sun asking about lower bookings and lower orders. Jeff and May, Several readers of my website wrote me about the issues of lower bookings and lower orders that were mentioned at the recent conference call. They indicated Sun has not explained those issues adequately. As a Sun stockholder, who is very concerned about the candor of Sun's executive management team, I ask you the following questions: 1. What is Sun's explanation of the problems? 2. Does Sun have plans to improve bookings and orders? If so, what are they? 3. Why was the topic not adequately explained during the conference call? If you respond I will post your response on the website. If you do not, it will reinforce my feeling and the feeling of many other investors of the lack of candor. October 26, 2004 Following are comments from Steven Milunovich on Sun's 1Q05 Earnings Report: Sun did a great job on costs and expenses. Sun used to be grouped unfavorably with Apple, both niche vendors. Will Sun now enjoy a Phoenix-like renaissance like Apple? We still perceive Sun to be more similar to DEC than to Apple. Given fairly mature markets and tough competition, Sun doesn’t appear likely to dramatically accelerate revenue growth as Apple has in creating a new product category. Revenue was a touch light in rising 3% year over year to $2.6 billion with the U.S. and storage down. Furthermore, orders and product backlog were soft. My questions - 1. Is Sun more like DEC than Apple? 2. Can Sun achieve a "Phoenix-like renaissance" under the leadership of McNealy? 3. Why has Sun not been candid with investors about the softness in the orders and product backlog? November 6, 2004 Sun Microsystems Inc. reduced its first-quarter loss Friday as company finalized the accounting for its $92 million patent settlement with Eastman Kodak Co. over the Java programming technology. Sun's loss for the three months ending Sept. 26 was pared by $27 million, or 1 cent per share, according to a regulatory filing. The loss now stands at $147 million, or 4 cents per share, compared with a loss of $286 million, or 9 cents a share in same period last year. Novemver 6, 2004 I wrote Jonathan Schwartz regarding his article Putting Sun's Kodak Settlement in Context. OPEN LETTER TO JONATHAN SCHWARTZ Jonathan, On your weblog, you wrote, "First things first: nothing's changed. In terms of patents, and intellectual property, nothing whatsoever about the Kodak settlement suggests Sun's position on IP has changed. Moreover, the settlement was all about ensuring what Kodak was doing to Sun, they could do to no one else in the Java community." "But let's get the issues out on the table." "First, this settlement is proof we're committed to protecting our customers and communities." You also wrote, "We still believe IP is what keeps our industry alive, and we still believe its the most durable asset created by Sun. And a $92M Kodak settlement is just that, a settlement to get this behind us. So that we can get back to creating IP for a networked world, and stop flying back and forth to Rochester, NY. Headquarters of the Kodak Corporation. Home to most of their employees, and an economy reliant upon the revival of Kodak for an economic turnaround. Did I mention the trial was heard by a Rochester jury?" You ended by writing, "The net of which is, investing in intellectual property is how Sun invests in our future. Protecting our customers is a part of our commitment to them, to stand behind what we do, in open source, closed source, community source, binary, streamed formats or otherwise. That was the strategy before the Kodak settlement, that is the strategy after the Kodak settlement. Don't believe the conspiracy theorists - or the companies that don't stand behind their IP - who say this was all about setting up Kodak to attack the rest of the planet." "That's as spurious as the litigation." As a stockholder, who is very concerned about the leadership and candor of Sun executives, I ask you the following questions: 1. Considering the fact that Sun agreed to settle only after Sun lost the case in court, isn't your statement "First, this settlement is proof we're committed to protecting our customers and communities." disingenuous? 2. It appears that you are trying to leave the implication that the jury trial was unfair. If so, why didn't Sun appeal? If not, what is your point in mentioning that "the trial was heard by a Rochester jury?" 3. It appears that you are trying to leave the implication that the trial in a local court. Why did you not mention that the trial was in a federal court? 4. If the litigation was "spurious", why did Sun lose and did not appeal? 5. Was Scott McNealy the ghost writer for this blog? 6. Was this blog just another attempt by a Sun executive to deceive its investors? If you respond, I will post your response on my website. Novemver 26, 2004 According to Gartner, DELL surpassed Sun in server revenue for the third quarter of 2004. DELL's worldwide server revenue increased 17 percent over the same period last year to $1.16 billion, while Sun's total server sales decreased 2.7 percent to $1.13 billion. Gartner reported third-quarter sales of $11.82 billion, up 6 percent from last year. IBM was No. 1 and HP was No. 2. Questions - 1. Are DELL servers less expensive than Sun's? 2. Are DELL servers better price performers than Sun's? 3. Does DELL provide better customer service than Sun? 4. Do DELL servers have more functionality than Sun's? 5. Does DELL do a better job of marketing than Sun? 6. Do the Sun executives know why the company's server revenue is falling and DELL's is rising and what is Sun doing to effectively compete in the servers marketplace? January 3, 2005 I wrote Scott McNealy regarding an interview published by the NY Times. OPEN LETTER TO SCOTT MCNEALY Scott, In a recent interview with the NY Times, you were quoted as saying in response to a question about how Solaris 10 and other recent developments will impact the stock price, "Depends on when you bought. The low was around $2-something. We're doing a little better than that now. In the last year, we certainly outperformed S.& P. and all the rest of them. I like to refer to us as the best-funded pre- I.P.O. stock price start-up in the industry. But again, I can't predict. We were a raging buy at 10 times revenue. So, go figure that." As a shareholder, who is concerned about your candor and job performance, I ask you the following questions. 1. Since you mentioned the stock low, why did you not mention the stock high of around $64? 2. Was this an oversight or just an attempt to deceive shareholders? In response to a later question about whether you are comfortable with the stock price, you were quoted as saying, "I'm not paid to be comfortable or uncomfortable - I'm paid to generate a return for shareholders long term." 3. Is a stock price decline from around $64 a share to around $5 a share the long term return the shareholders expect? 4. How would you objectively grade your performance as CEO over the past five years? I think most shareholders with long term holdings would give you a big red F and ask why the Board of Directors have put up with your incompetence so long. Regards, Robert Bolton January 5, 2005 Sun Microsystems shares slumped after analysts, Toni Sacconaghi and Steven Milunovich, gave a negative outlook for the earnings report planned for next week. Milunovich cut his revenue outlook for Sun by $50 million to $2.91 billion. He said recent market surveys show "mediocre buying intentions" among potential customers for Sun's products, and that the company appears to have seen its business go soft towards the end of the recently completed quarter. January 18, 2005 I wrote the Sun Board the following letter. OPEN LETTER TO THE SUN BOARD OF DIRECTORS It was announced that the board of Krispy Kreme Doughnuts Inc. ousted Scott Livengood, the chairman, chief executive and president today and brought in two turnaround specialists to run the company. The Krispy Kreme board had the courage to do what the Sun board seems to lack the courage to do. The Krispy Kreme board serves its company's shareholders. The Sun board appears to be a bunch of McNealy sycophants, who seem unwilling to go to the bathroom without getting his permission. It should be noted that there are more similarities between both companies than having CEOs named Scott. Stephen F. Cooper has been named chief executive, replacing Livengood, who has retired and will become a consultant to the company on an interim basis. Steven G. Panagos has been named the president and chief operating officer. James H. Morgan, who has served as a director of the company since July 2000 and as the vice chairman since March 2004, has been elected chairman of the board. Morgan said, "I believe that the company's employees, franchisees, vendors and shareholders will be excited with the energy, experience and vision which Mr. Cooper and the KZC team will bring to the company," He added "On behalf of the board, I want to thank Scott for his years of dedicated service to the company and for making himself available to Krispy Kreme as a consultant to facilitate the transition." I suggest changing Krispy Kreme to Sun Microsystems and issuing the same statement. Krispy Kreme announced that the results for its fourth quarter ending Jan. 30 have been, and may continue to be, adversely affected by significant sales declines. Does this sound familiar? Again, Krispy Kreme should be replaced by Sun Microsystems. The next time you have a donut with your coffee, give some serious thought to making a bold and courageous move. Be more than a mere pebble in the sand, watching a setting Sun. Sincerely, Robert Bolton January 23, 2005 Sun Microsystems reported sales of $2.843 billion for its 2005 fiscal second quarter, ending 26 December, a decrease of 1.6 per cent compared with $2.888 billion for the same period a year ago. Net income for Q2 fiscal 2005 on a non-GAAP basis was $28 million, compared with a net loss, on a non-GAAP basis, in Q2 fiscal 2004 of $99 million or a net loss of $0.03 per share. Steve McGowan, Sun's chief financial officer and executive vice president, corporate resources, said: "We are pleased with our progress this quarter towards achieving our key financial goals. It makes one wonder if revenue is one of Sun's key financial goals. This website reported that coming into this quarter orders and product the backlog were soft. Steven Milunovich again was on the money in his outlook. Shareholders should read carefully his remarks. March 7, 2005 Scott, I was informed of the following notice to All Sun Microsystems Employee Stock Option Plan Participants from the Securities Arbitration Law Firm of Klayman & Toskes, P.A. The Law Firm of Klayman & Toskes, P.A. ("K&T") ( http://www.nasd-law.com ), representing Sun Microsystems, Inc. (SUNW) Employee Stock Option Plan ("ESOP") participants in securities arbitration lawsuits, continues to pursue claims on behalf of Sun Microsystems, Inc. employees after receiving favorable arbitration decisions. K&T has filed numerous claims on behalf of Sun Microsystems, Inc. ESOP participants and other investors with concentrated stock holdings against securities firms who have mismanaged their clients' portfolios. One such claim, NYSE Case No. 2003-014541, is seeking compensatory damages in excess of $1,495,176. The claims focus on the mismanagement of clients' portfolios, due to the fact that there were risk management strategies available that would have protected the value of the concentrated portfolio. Such risk management strategies include stop loss and limit orders, protective puts and collars. Stop loss orders, limit orders and protective puts provide an account with downside protection and an exit strategy should the stock decline in value. A hedge strategy, known as "zero cost" collar, would have created a range of value that the portfolio would have maintained irrespective of the fluctuation and direction of the underlining stock price. The failure to use risk management strategies, as well as the failure to "hedge" the value of the portfolio concentrated in Sun Microsystems, Inc., directly exposed the claimants' concentrated portfolio to the fluctuations in the volatile securities market. According to company policy, Sun Microsystems, Inc. employees were restricted from entering into option transactions involving Sun Microsystems, Inc. stock. Despite the above mentioned restrictions, Sun Microsystems, Inc. employees still could have participated in a hedge strategy through the use of index-based options that would have protected their stock and allowed them to continue to be in accordance with company restrictions. The efficacy of an index-based hedge strategy, which relies on the use of a proxy, depends on the extent to which the two securities' price movement correlates with each other. K&T has determined through research of historical data that in fact such correlation did exist. Recently, K&T obtained a favorable award against UBS/PaineWebber for a Microsoft ESOP participant. The amount awarded represented 47% of the claimant's out-of-pocket losses. However, the amount awarded against UBS/PaineWebber represented 100% of the employee's damages had UBS/PaineWebber implemented the "zero cost" collar strategy. Similarly, K&T received another favorable award against Smith Barney for a WorldCom ESOP participant. In both cases, K&T was able to successfully demonstrate that these ESOP participants received unsuitable investment advice from their full service brokerage firms. Due to these recent successes, K&T firmly believes that it can and will continue to aid investors under similar circumstances. The sole purpose of this release is to investigate, on behalf of our clients, sales practice violations of licensed brokers at major brokerage firms. Presently, K&T continues to represent many technology and telecommunications industry employees, as well as numerous others, who have claims against major Wall Street brokerage firms before the New York Stock Exchange and the National Association of Securities Dealers for securities violations including the misuse of margin, the misuse of stock option plans, failure to supervise, unsuitability claims, misrepresentation and material omissions of fact and excessive trading/churning of customers' accounts. K&T has offices in California, Florida, Nebraska and New York and represents investors throughout the nation. If you wish to discuss this announcement or have information relevant to our securities arbitration claims, please contact Lawrence L. Klayman, Esquire of Klayman & Toskes, P. A., at 888-997-9956 or visit us on the web at http://www.nasd-law.com . SOURCE Klayman & Toskes, P.A. Lawrence L. Klayman, Esquire of Klayman & Toskes, P.A., +1-888-997-9956 As a stockholder, who is very concerned about your leadership and candor, I ask you the following questions: 1. What is Sun's response to this notice to All Sun Microsystems Employee Stock Option Plan Participants from the Securities Arbitration Law Firm of Klayman & Toskes? 2. Why did Sun Microsystems, Inc. have a company policy to restrict employees were from entering into option transactions involving Sun Microsystems, Inc. stock? 3. Do you agree that this company policy cost employees millions of dollars? If not, why not? 4. Did this policy violate any Securities laws? Regards, Robert Bolton March 29, 2005 Today Merrill Lynch indicated that Sun Microsystems' fiscal third quarter was mediocre. "Our surveys show mediocre buying intentions, and a potential server market slowdown could hurt Sun more than competitors," Steven Milunovich said. Based on Milunovich's track record and Sun's business and stock performance under McNealy's [lack of] leadership, is the Sun rising or setting? March 31, 2005 CNET reported Marissa Peterson, a 17-year Sun Microsystems employee who just celebrated her first anniversary leading its services division, is stepping down and eventually leaving Sun. Peterson will work on a "proprietary" project for Sun. Peterson left her mark on Sun's services group. "She led the organization to consistent overachievement against plan of revenue (and) contribution margin in the last three quarters, including hitting the first services billion-dollar quarter for Sun," Schwartz said. Schwartz won't replace Peterson. As a Sun employee or stockholder, you should be asking: 1. Is this a significant story? 2. If it is, why is it? 3. Why is Peterson stepping down, if "she led the organization to consistent overachievement against plan of revenue (and) contribution margin?" 4. Why is she leaving after a long career? 5. Why is she not leaving immediately? 6. If the services business is growing and is important to Sun, why is she not being replaced? April 15, 2005 I wrote Scott McNealy regarding his remarks regarding the latest Sun earnings report. Scott, Sun reported a third-quarter loss of $9 million on revenue of $2.625 billion. Excluding one-time charges, its losses would have totaled 61 million, or 2 cents a share, vs. the Thomson First Call consensus estimate that it would break even on $2.74 billion in revenue. Services revenues grew slightly to $944m from $940m year-on-year while product sales declined to $1.681bn from $1.711bn. According to CBS MaketWatch, Scott McNealy preferred to look at the nine-month figures, which showed a marked improvement, he said, with revenues stable. "We've made over $1bn improvement in net income on a year to date three-quarter comparison," he said. "We've got the cost structure more in line and we're going to drive the revenue momentum into earnings momentum." The company's losses were down dramatically on the $260m recorded a year earlier when restructuring charges were $203m, compared to $45m this time. A year ago, Mr McNealy cut 3,300 jobs and on Thursday he said the restructuring continued - there were more than 30 projects underway to reduce Sun's cost structure. Tremendous strides had been made in reducing research and development and selling, general and administrative expenses by more than $400m, he said. Sun shares have lost more than a quarter of their value so far this year. As a stockholder, who is concerned about your leadership and candor, I ask you the following questions: 1. What is the "revenue momentum", that you cited? 2. Are you trying to deceive stockholders and potential stockholders into thinking that an improvement in net income on a year to date three-quarter comparison means that Sun has "revenue momentum?" 3. Is your statement that "We've got the cost structure more in line and we're going to drive the revenue momentum into earnings momentum." an attempt to deceive stockholders and potential stockholders? If you respond, I will post your response on my website. Regards, Robert Bolton May 4, 2005 I wrote Scott McNealy regarding his remarks regarding his comments regarding the BusinessWeek report about his discussions with Silver Lake Partners. Scott, BusinessWeek reported last Friday that you had discussions with Silver Lake Partners about taking Sun private in a deal that values Sun at $5 to $5.50 a share, or between $16.9 billion and $18.6 billion, based on Sun's current shares outstanding. It was reported that you denied the truthfulness of the BusinessWeek report in an e-mail to CNET Networks, calling it "totally unsubstantiated rumor." It was reported that a Sun spokeswoman said that despite your e-mail, the company didn't have an official position on the report. Silver Lake has not commented on the possible deal. As a stockholder, who is very critical of your leadership of the company and candor with the stockholders and potential stockholders, I ask you the following questions: 1. Are you willing to testify under oath that you did not have any discussions with Silver Lake Partners? 2. If the BusinessWeek report is not true, why did the company not deny the truthfulness of the BusinessWeek report as you did? 3. What is Sun's policy regarding commenting on rumors? 4. If the company's policy is not to comment on rumors, why did you comment? 5. Since you called the rumor false and the company did not comment, what should stockholders and potential stockholders believe? Does that deceive the stockholders and potential stockholders into thinking there is a possibility that the rumor is true, thus deceiving them? 6. Since you commented on this rumor, does that mean that in the future you will comment on all rumors that might impact the price of Sun stock and if you don't, stockholders and potential stockholders should believe the rumor is true? 7. Do you think the SEC should investigate the BusinessWeek report and your comments to it? If not, why not? If you respond, I will post on my website. Regards, Robert Bolton June 2, 2005 On June 2, 2005, Sun Microsystems Inc. agreed to buy Storage Technology Corp. for $4.1 billion in cash. This was Sun's biggest acquisition in history. In recent years the company has lost marketshare to competitors, IBM and Hewlett-Packard. Although its competitors have long since been rejuvenated, Sun has continued to dither notwithstanding many employee layoffs, reorganizations, and strategy changes. StorageTek's core business is tape backup systems. According to Gartner and IDC, the growth rate of the market for tape backup systems is 4% annually, which is lower than the growth rate for the overall storage market. The $2.5 billion market is on the decline as customers switch from tape to disk drives and more advanced network storage systems. StorageTek has 7,100 employees compared with Sun's 32,000. McNealy indicated that this purchase will strengthen Sun's product line and add a 1,000-person sales force with knowledge of the data storage market. As shareholders, employees, and customers following are some questions that you should consider: 1. Is this acquisition of another hardware company with low growth projections consistent with Sun’s strategy of trying to grow software and services? 2. Considering Sun's acquisition track record under the leadership of Scott McNealy, for example the $2 billion purchase of Cobalt Networks Inc. and then scrapping the product line three years later, why should shareholders expect this one to be successful? 3. Considering Sun's employee and executive retention track record under the leadership of Scott McNealy, why should shareholders expect Sun to be able to retain StorageTek's sales force and key executives? 4. Considering Sun's customer retention track record under the leadership of Scott McNealy, why should shareholders expect Sun to be able to retain StorageTek's customers? 5. Considering Scott McNealy's track record as CEO, should shareholders, employees, and customers have trust and confidence in his decisions and his statements? August 4, 2005 On July 26, 2005, Sun Microsystems reported a profit of $121 million (4 cents a share) for the fourth-quarter compared to $783 million (23 cents a share) in the same period a year ago. Revenue fell to $2.98 billion from $3.11 billion. Excluding one-time items and charges, Sun earned $200 million, or 6 cents a share. August 5, 2005 June 30 marked the end of Sun Micro's fiscal year. Let's review the company's stock performance over the past three years compared to its major competitors and major indices.
My questions - 1. Should the CEO be held accountable for the shareholders' return on investment? If not the CEO, then who should be held responsible? 2. Considering the very poor return to the shareholders, why has McNealy not been removed as CEO? September 21, 2005 Scott G. McNealy will get $1.2 million in combined salary and bonus for the fiscal year ended June 30, compared with a $100,000 salary and no bonus in 2004, according to a proxy statement filed yesterday. McNealy's salary increased to $121,789 from $100,000 in the latest year, and he also received a $1.1 million bonus. Also, one of the directors, Lynn E. Turner, won't stand for re-election when his term expires on Oct. 27. My questions - 1. Considering Sun's performance in 2005, why did McNealy receive a salary increase and a bonus? 2. Why is Turner leaving the board? 3. Did Turner disapprove of McNealy's compensation in 2005? 4. Why aren't other board members leaving? October 18, 2005 I wrote Scott McNealy. Scott, In a FORTUNE article titled "Still Feisty After All These Years", following are your comments to their statements: FORTUNE: So you’re working on your image. McNealy: When you’re not making money, your competitors position you. When you’re making money, you get to position yourself. We’re just having a hard time with the image thing. FORTUNE: It doesn’t help that your stock has been stuck at $4. McNealy: But we’ve got a market valuation of $13 billion, about 1.2 times revenues, which is a wonderful valuation. As a stockholder, who is concerned about your candor, please answer the following questions and I will share the questions and answers with my readers - many are Sun shareholders. 1. Why are you having a hard time with the image thing? 2. Does it have anything to do with the lack of trust and confidence in your leadership? 3. Did your image thing have anything to do with Lynn E. Turner's recent decision to quit? 4. Why did you fail to adequately respond to the fact that Sun's stock has been stuck at $4? 5. Is it just another indication of your lack of concern for Sun shareholders? 6. Aren't your responses disingenuous? 7. Do you think these responses increase or decrease trust and confidence in your leadership and believability in your forthrightness? Regards, Robert Bolton October 31, 2005 Sun Microsystems' annual proxy statement contained two combative shareholder proposals. One would force the company to more closely link the awarding of executive stock options with performance. The other would lift the company's poison-pill provision, leaving the company less protected against a takeover. A poison-pill is a weapon used by corporate boards to block a hostile takeover attempt, by flooding the market with new shares in order to prevent a bidder from acquiring a majority of the stock. The proposal, calling for linking senior executives' stock option grants to performance metrics, received 42.8% of the vote. The proposal to eliminate the poison-pill received 84 percent of the vote at Sun's annual shareholder meeting in Santa Clara, despite the opposition of the Sun board, led by CEO Scott McNealy. Does this vote send a signal to the board that the investors have little trust and confidence in McNealy and the executive team? Last week, Sun also announced that Chief Financial Officer Steve McGowan, a 14-year employee of the company, will retire at the end of the company's fiscal 2006. November 7, 2005 For the three months ended Sept. 25, Sun lost $123 million, or 4 cents per share, including a $50 million expense related to stock options. That compares with a loss of $133 million, or 4 cents a share, in the first quarter of fiscal 2005. Excluding special items, Sun lost $68 million, or 2 cents per share, compared with a profit of $27 million, or a penny per share, in the same period last year. Excluding the stock charge, Sun would have lost $18 million, or 1 cent per share, in the most recent quarter. Revenue, aided by two recent acquisitions, grew 3.7 percent to $2.73 billion from $2.63 billion in the first quarter of 2005. Analysts were expecting Sun to post a penny-per-share loss on sales of $2.9 billion, according to a survey by Thomson Financial. This was another very disappointng quarter for Sun investors. November 9, 2005 Over the past two days large Sun investors have been reportedly dumping their shares. On Monday 150 million shares were sold in a single block trade. On Yueday, 2 large blocks totaling 13 million shares were sold. Do you think these investors have lost trust and confidence in McNealy? November 13, 2005 I wrote the following message to the Sun board. TO THE SUN BOARD OF DIRECTORS As a shareholder, who is concerned about Scott McNealy's leadership and his candor and the Board's relinquishment of its responsibilities, I ask you the following questions: 1. Why shouldn't Scott McNealy and the Sun Board be posterboys for this legislation? 2. Are you willing to testify under oath before Congress about the many issues I have documented on my website and written you about? Regards, Robert Bolton, Editor www.thesunalsosets.com cc House Committee on Financial Services Press Release For Immediate Release: November 10, 2005 Contact: Steve Adamske, 202-225-7141 FRANK INTRODUCES LEGISLATION TO PROTECT SHAREHOLDERS FROM ABUSES OF EXECUTIVE COMPENSATION Washington, DC- Congressman Barney Frank, the Ranking Democratic Member of the Financial Services Committee, today introduced “The Protection Against Executive Compensation Abuse Act” to address the problem of runaway executive compensation by requiring greater disclosure of executive compensation to shareholders. Frank’s initiative would not set any artificial limits on individual executive compensation. Rather, the legislation would give shareholders more information about management pay packages and empower shareholders to take action against management abuse and self-dealing. “We have witnessed a number of high profile executive pay packages that are hidden to the owners of the company, the shareholders, and I want to make sure we have full disclosure,” said Frank. “We are not taking anybody’s pay or even setting any limits, we just believe these owners should know how their employees (management) are being paid and have some ability to do something about it if they so desire.” “The wild imbalance in executive compensation and the often perverse incentives that accompany them encourage CEOs to sell out the best interests of their shareholders and employees, as we in Massachusetts have had occasion to experience,” Secretary Galvin said. “Congressman Frank’s legislation will turn a much-needed spotlight on these incentives that have warped so much of our corporate culture.” The bill would require that public companies include in their annual report and accompanying proxy solicitations a comprehensive “Executive Compensation Plan.” This Executive Compensation Plan must be approved by shareholders and include: Full Disclosure of Top Executive’s Compensation including any and all types of compensation paid (or to be paid) to top executives (such as pensions, golden parachute agreements, personal use of private jets/company apartments and other currently hidden compensation); Full Disclosure of Compensation Policies for Top Executives including the short and long-term performance measures or targets that will be used to determine the top executive’s compensation (and whether such measures were met in the preceding year); and Company Policy for Recapturing Any Form of Incentive Compensation That Subsequent Financial Results Show Are Unjustified such as when the company pays bonuses/grants stock options to executives for meeting performance targets only to later learn that these numbers were inaccurate and must be restated. Frank is concerned that shareholders and consumers are often left holding the bag for CEO greed and Board abdication. According to the Corporate Library’s recent CEO Pay Survey, the median total compensation received by CEOs increased 30 percent in fiscal 2004, with the average increasing 91 percent--driven by 27 CEOs receiving compensation over 1,000 percent greater than their previous year’s pay. The 2004 increase comes on top of median increases of 15 percent for fiscal 2003 and 9.5 percent in fiscal 2002. This disparity has grown significantly over the last few years. In 1991, the average large-company CEO received approximately 140 times the pay of an average worker; in 2003, the ratio was about 500:1. The amounts have risen so far so fast, that they can no longer be explained by traditional valuations. Even when adjusting for other variables, such as company size, performance, industry classification, and inflation, studies find executive compensation is far higher today than in the early 1990s. While these numbers are themselves concerning, they also reflect real costs to shareholders and the economy. In a recent study Harvard’s Lucian Bebchuk and Cornell’s Yaniv Grinstein found that in 1993, the aggregate compensation paid to the top five executives of U.S. public companies represented 4.8% of company profits; by 2003 the ratio had more than doubled to 10.3% and the total amount paid to these executives during this period is roughly $290 billion. In addition to concerns about the sheer size, these compensation schemes may give executives a perverse incentive to shirk their duty to shareholders, for example: Earnings Manipulation. Putting aside outright earnings fraud, because accounting standards like FAS 133 are not always clear, excessive compensation (particularly enormous bonuses based on meeting “Wall Street expectations”) give executives an incentive to use “aggressive” accounting methods that maximize his/her compensation. Years (or months) later, when the company is forced to restate its earnings - and shareholder value plummets - the executives retain their bonuses. Unprofitable Mergers/Acquisitions. Because senior executives often receive additional compensation when they buy a new company or sell their current one (and are responsible for negotiating the overall deal), there is a natural conflict of interest between the executives’ interest (i.e. closing the deal and obtaining his/her “golden parachute”) and the company’s interest (i.e. maximizing shareholder value). As Congress has seen first hand, even executives of institutions that lose money, restate earnings, and face extensive regulatory scrutiny have received (and retained) substantial compensation packages. After being forced out of Fannie Mae because the company used faulty accounting - and announced a $9 billion restatement that could go up - Former Fannie Mae, CEO Frank Raines will receive a pension worth roughly $1.4 million per year for life and prorated portions of incentive stock awards that could be worth millions of dollars. Unfortunately, Raines is hardly the exception. November 13, 2005 I support “The Protection Against Executive Compensation Abuse Act.” I recommend that the Financial Services Committee use Sun Microsystems as a case study for this legislation. Thanks to the readers of this website for your many contributions. I will use those contributions and your future contributions to try to get legislation passed to ensure that no investors will have the same experiences that Sun investors have experienced. I urge the Committee to get the Sun Board of Directors to testify under oath. May 1, 2006 On April 24, 2006, Scott McNealy stepped down as Sun Microsystems CEO. With this action, this writer has achieved its goal. However, this website will not sunset, because there is still more work to be done. So, I will continue to publish information helpful to Sun shareholders, employees, customers, and partners. Stay tuned. May 15, 2006 I wrote the letter below to the Sun Board. Dear Members of the Sun Board: The Motley Fool reported the following. Sun Microsystems' former CEO and co-founder Scott McNealy's average compensation over the past six years has been $13.3 million. However, the company's annualized return over the same time frame has been -31.5%. As a concerned Sun stockholder, I ask you the following questions: 1. Is the above information correct? If not, what is the correct information? 2. If the information is correct, why should I not ask the SEC to investigate a possible conspiracy between McNealy and the Sun Board, which allowed him to receive that compensation for such a poor return for such a long period? 3. If the information is correct, why should I not ask the SEC to investigate a possible conspiracy between McNealy and the Sun Board, which allows him to remain on the Sun Board? May 22, 2006 I wrote the letter below to the Sun Board. Dear Members of the Sun Board: SiliconValley.com reported the following. Sun Microsystems' former CEO Scott McNealy', who will continue to serve as chairman,will receive an annual base salary of $1 million. As a concerned Sun stockholder, I ask you the following questions: 1. Is the above information correct? If not, what is the correct information? 2. If the information is correct, why should I not ask the SEC to investigate this as a possible artifice to deceive stockholders while continuing to pay McNealy despite the poor company performance? May 28, 2006 I wrote the letter below to Scott McNealy. Scott, On May 25,2006 Ken Lay was found guilty of six counts of conspiracy and fraud, and Jeff Skilling was convicted on 18 counts of conspiracy and securities fraud. In October,1999, Enron announced the launch of EnronOnline, its Internet-based system for wholesale energy trading. In January, 2000, Enron and Sun issued a joint press release outlining plans to build a high-speed broadband telecom network and trade network capacity, or bandwidth, as it trades electricity or gas. In January, 2000, a conference for stock analysts was held that featured Sun Microsystems Inc. chief executive Scott McNealy to give Enron "dot-com luster." Allegedly, this was a part of a deal known as Project Grayhawk. As a Sun stockholder, who feels that you have not been candid with Sun stockholders, I ask you the following questions. 1. Is the above information correct? If not, what is the correct information? 2. To my knowledge, you have never made a statement on the record about your association with Enron. Since you are still on the Sun Board of Directors, do you feel you have an obligation to Sun shareholders to fully explain your dealings with Enron? 3. Would you be willing to make a statement under oath with a penalty of perjury about yor dealings with Enron? 4. Are you aware that many, many, many ENRON shareholders lost their life savings and their retirement assets due to the deceit of Lay and Skilling? Can you tell me why the SEC should not investigate my allegation that many, many, many Sun shareholders lost their lifetime savings and their retirement assets due to the deceit of Scott McNealy? 5. Are you willing to say under oath with a penalty of perjury that you never told Sun employees at employee meetings not to sell their Sun stock, and then you sold a significant number of shares less than a month later? If not, why not? 6. Are you willing to state under oath with a penalty of perjury that you have never deceived stockholders? If not, why not? Regards, Robert Bolton June 3, 2006 Sun made the following announcements last week.
June 12, 2006 Check out the latest editorial and send me any feedback you might have. June 22, 2006 The Rocky Mountain News reported yesterday that as many as 800 Colorado workers could be cut today. If you think you are being treat unfairly contact a lawyer or me. June 23, 2006 Sun Microsystems said it laid off 122 Colorado employees and more could be coming. The company said 50 cuts were at the Broomfield campus and 72 were at the Louisville campus. Louisville was the headquarters of Storage Technology Corp., which Sun bought last year for $1.4 billion. My questions - 1. Are these layoffs at Louisville another example of the failed acquisition strategy and implementation of Scott McNealy? 2. Wouldn't it be in the best interest of Sun stockholders, employees, customers, and business partners for the company to be acquired and for the current President and CEO to be removed and replaced by a transforming leader? June 26, 2006 Sun Microsystems cut almost 400 people last week including 113 in Menlo Park, California. More employees could be notified August 3. |
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