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JUNE 17, 2007
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 BT Special
 Back of the Book

Rupee Rise
Though an appreciating rupee is a cause for concern for many industries, it is proving to be a boon for some, particularly those that have large foreign currency borrowings. A weaker dollar is making repayments cheaper. Also, state-run refineries and those in the aviation sector are well-positioned to benefit from the stronger rupee. The Indian currency is up 8 per cent this year and is Asia's strongest currency against the dollar in 2007.

The ECB Route
The cap on maximum external commercial borrowings (ECBs), an annual ritual for the government, is fast losing its significance. Since the bulk of the foreign borrowings is raised under the automatic route by companies, it is becoming difficult to enforce the cap. The government had raised the annual limit of ECBs last year from $18 billion (Rs 81,000 crore) to $22 billion (Rs 99,000 crore). Now, it seems that total inflows will cross the $22-billion mark.
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Business Today,  June 3, 2007

Scott McNealy/Chairman and Co-Founder/ Sun Microsystems
"I Don't Think Sun Needs
Reinvention Right Now"

"We like being an infrastructure provider for Web 2.0, 3.0 or 4.0"

For years, Scott McNealy was one of Silicon Valley's most colourful and combative CEOs. His running feud with Microsoft and his acerbic take on the software giant made many a scintillating story. (He once described Bill Gates as 'Probably the most dangerous and powerful industrialist of our age'.) Alas, all that's history. Three years ago, the two companies made peace, which involved Microsoft paying $1.6 billion (for alleged patent violations) to Sun and agreeing to work together with it on technology for the next 10 years. The settlement, however, wasn't enough to get Sun out of its dotcom funk. The company continued to lose money-until recently. The last three quarters (July-March) saw Sun report a net income of $144 million against a loss of $563 million in the same period the previous year. McNealy, 52, who 'stepped up' as the company's Chairman in April last year, was in India recently to meet with key customers and government officials. He spoke to
BT's on Sun's prospects in the US and India. Excerpts:

It's been a little over a year since you stepped down as CEO...

…I stepped up, not down (laughs). When you've worked really hard and you've done a good job as CEO for 22 years, you get promoted to Chairman (laughs).

So is Sun better or worse without you at the helm?

I think we've got a fantastic guy (Jonathan Schwartz, CEO) in the job and he's doing a fabulous job. I'd encourage you to read his blogs, you get a little flavour of what he's like. He's bright, articulate, courageous, high integrity, savvy, personable, charismatic… he has got all the pieces, and I am still there. I am still working hard, I am freed up… For the last 10 days, he's been stuck in executive leadership team meetings and grinding out next year's budget and all that stuff. I've done that for 24 years. I'm now doing what I like to do, which is dealing with the customers, be with our partners, meet our employees worldwide and talk to government leaders and education folks and all the rest of them. It's a good gig if you can get it.

I looked at your three quarter numbers, and…

…We're growing and making money again and gaining huge share. You know, it will be our 18th straight year of cash flow positive from operations. This year, we'll generate half-a-billion to a billion dollars of free cash flow. That ain't bad.

But the worrying thing is your server sales seem to be slowing down globally…

You know, you've got to look at Sun as a company. We've got servers, storage, software and one more thing, services, right? And some people will buy the services and not the servers. We just did a very interesting deal with the Defense Information Systems Agency (DISA) in the United States that is the IT provider to the intelligence community in the US government. They didn't buy any servers. What they did is they signed up for about a $125-150-million deal where DISA will own and operate the data centres, we'll own and operate the servers, storage, networking operating systems and middleware in their data centre and then they'll own and operate the data and applications in their environment. We're going to charge them a base monthly service fee and a variable $X per gigabyte month and $Y per CPU hour. Is that services revenue? Well, it's all running software, so is that software? Well, it includes storage; so is that storage number? Well, it is also servers, so is that server sale? So the numbers get a little hard for the world to totally understand. I just look are we gaining share? We're growing, we're making money, we're generating cash.

But do you think the juice is going out of hardware? Do you need more of services like what others have done?

You can't do services without hardware (laughs). You know, the challenge with software is we're making it all free and open source. So, is the juice going out of software? Well, I don't know. What about services? What about storage? Well, 37 per cent of the world's data resides on our platform. It's like saying that of our four kids-servers, storage, software and services-which do you like the most and which do you think is going to be the most successful? They all do brilliantly, I love them all.

The other Silicon Valley icon, Steve Jobs, has managed to reinvent Apple. He did the iPod thing, now the iPhone thing. Is Scott McNealy also thinking about some sort of reinvention that will make Sun look very different from what it is today?

"We compete with everybody, we collaborate with everybody"

You know, it's gonna be up to Jonathan to reinvent if we want to reinvent. It's his job to go do that. Sun has gone through several reinventions. We started off as an open source, you know, workstation company. Then we did servers and then we were the dotcom, internet bubble company and then we grew too fast and we got caught and (were) not being faithful to our roots. So we went back to open sourcing, back to focus on R&D, back to a 'lean and mean' focus on quality and 'lo and behold', we've focussed back in on all those old things that made us so successful before the bubble and now we're growing and making money again. And the guy who did a lot of the heavy lifting on all that was Jonathan. And as a result, it has to be said that we've got it, we go for it and we make it happen. I like our position, I like where we are and we like being an infrastructure provider for Web 2.0, 3.0 or 4.0. Twenty-five per cent of the world is connected to the IP network right now, the other three-fourths are totally on the other side of the digital divide. They're gonna come on board. What are we adding 6 million wireless subscribers a month here? They're all IP-connected. In fact, the first way most kids are getting connected to the IP network is through the cell phone and this is the model that we like and are promoting and supporting. I don't think that we need reinvention right now.

At the JaveOne conference in San Francisco recently, you launched JavaFX mobile. Is that going to target all operators across all platforms?

It's a full, open source stack that will run right on handset up, set-top box or game up environment. The beauty of it is that everybody's got this quadruple player where they wanna bring wireless and wireline and then video and audio and all the rest of it and bring it all together. With Javafx mobile, you can put it on the phone, you can put it on your set-top box, you push it in your video recorder, you can put it in your games environment, you can run it on your Blu-ray DVD. So you can create a quadruple-play kind of user experience and have one development model, one user interface, one security fault management architecture, and it's all open source and it's all Java.

But have you signed any deals with operators yet?

We just signed one last night. We're gonna sell this very aggressively. We will have a whole family of Javafx products, starting with mobile and script. And stay tuned, it will show up on lots of other devices.

Sun has now gone the open source way, but….

Gone back to it. You forget we were the first company to basically base our whole business model on open source software with Berkeley Unix and others. NSS (Network Security Services) was open source, TCP-IP was open source. We've donated more than three times our nearest donator in source codes to the community. Linux is another instance. If you take Linux, 25 per cent of the bits came from Sun. So, we're not separated at birth. These are stem cells (laughs).

But now Microsoft is saying that 235 of its patents have been violated by open source software…

If you read Jonathan's blog, he says it very well. We try not to litigate with our customers, we try to innovate. And that's our strategy.

But if Microsoft did want, let's say, some share of all the open source software that's going into increasingly large number of big companies such as Fedex and Exxon, what happens?

I can't speculate. I mean that's your job to speculate (on)... I certainly don't recommend suing customers.

This is a very different Scott McNealy. You've mellowed down.

You know what? It's not my role to… Jonathan will set the positioning. We have a 10-year interoperability agreement with Microsoft. We're integrating and tying our technologies together as aggressively as we can. We compete with everybody, and we collaborate with everybody. That wasn't true 20 years ago, 15 years ago. And I explained to the press all along it was all theatre. I told everybody who knew me, 'did you get enough quotes, did you get enough to write?', it's all theatre.

We're very secure in our market position, we're very secure financially and we're very secure that we've got a great open source-sharing business model that customers love and it's been a lot of time here (Asia) and I have not yet heard one customer say (that) they don't like our strategy. They're all very excited about this model.

But you haven't mellowed down because you're 52, that can't be.

I don't know about mellowed down…certainly wiser (laughs).

What do you mean when you say that this is the Participation Age?

The first age in computing was digitisation and then there was NFS (Network File System) where we shared files and then came the Java browser, and that was kind of the publishing subscribe era where somebody could publish an html page and you subscribed to it by just doing a URL call from your browser and it was a publishing-subscribe kinda static, kinda like watching a movie, one frame at a time. We've now moved into what we call the participation age where you're e-mailing, instant messaging, blogging, everybody's a publisher, everybody's a content creator, everybody's an editor, you do mashups, you do podcasting...

India is a fast-growing market for Sun. I think you're growing at 35 per cent on revenues of about Rs 1,200-1,400 crore. There are lots of new sectors that are now beginning to take off. What's the outlook for Sun?

Sunny, (laughs) bright (laughs). The future is so bright we've got to wear shades. India is much more to us than just a market. We have our largest non-us engineering site here. We have about 1,500 folks here. And it is one of our few global targeted growth sites. So, our future in many ways is dependent on India doing well, not just the market, but the education system, and the infrastructure system.

One final question. How do you see the competition between Google and Microsoft playing out?

You know, we'd like to be an arms supplier to both. We're happy to supply servers, storage, networking, operating systems, environment… whatever. We'd love to supply them with really great infrastructure technology. I think whoever buys more of our stuff is probably going to win.

One other thing I'd like to plug while you are here is, we took all we learned around open source and engineering and developed a site called I think there is a big opportunity for India to lower its cost of textbook development, curriculum development, testing and assessment programmes by supporting It provides infrastructure and a website where content can be created and then localised into 23 different languages and again it will be free, open source and available. We're talking to lots of government officials. This is separate from Sun, it's a non-profit (organisation), but spun out of Sun. I think it's an interesting way of taking everything you know about sharing in the technical world and applying it to education.

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