Scott McNealy, Chairman and CEO of Sun Microsystems

This is a partial transcript from Your World with Neil Cavuto, February 10, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: Sun Microsystems is your typical battered high tech stock. Take a look at this chart. But as depressing as the chart looks, you'd have a hard time convincing company boss Scott McNealy his business looks the same way.

He's out with a super-sophisticated computerized processing system he hopes will steal business away from fast-rising competitors Hewlett-Packard and IBM. And he told me earlier he thinks this product and his company are up to the task.


SCOTT MCNEALY, CHMN. & CEO, SUN MICROSYSTEMS (SUNW): We are trying to assemble what we call the network computer and provide all of the features, functionality, integrated, tested, assembled, certified, no batteries required, ready to go, either at your service provider or in your own data center, all ready to go.

CAVUTO: A simpler, maybe on my part, a dumber question about the economy, and this ahead of a potential war with Iraq, what company in its right mind is going to commit a good deal of money toward a project or, tied to technology, it might indeed need, Scott, but faces the uncertain prospect of an outgoing war with Iraq?

MCNEALY: Well, I think you have to look at your cash positions and you have to look at your competitive positions and you have to look at the efficiency opportunities that you have, the productivity gains. And I believe today even more than ever, you need to be efficient, effective, low cost platform supplier. And those who don't invest now...

CAVUTO: But that is still difficult to shake those lemons from that tree? I mean, they like your stuff, critically I know in the press, it is praised, but they still say, can't do it, not now, uncertain, don't know when we will be more certain.

MCNEALY: And that's why it is a tough environment. But that's also why we grew R&D last quality, even in this tough environment, yeah, we are lower in cost, and other parts of our business but our products are our lifeblood, and this will turn around, the network computing business is a good business long term. So it depends on whether you are willing to, you know, take the aggressive long-term approach and deal a little bit with the heartburn. You can see our PR, our press reviews aren't so hot right now. But it will turn around when the market turns around.

CAVUTO: Actually, and the technology press reviews for what you've come up with, they are very hot. They are still good there. But this begs the question, back to your company and the stock price, Scott, there has been a lot of rumoring back and forth, and maybe you can put it to rest here, that you have in fact, or others have shopped yourself around, that Hewlett-Packard might be interested, that IBM might be interested. Are things to the point now where you would entertain that, or are you still saying as an ongoing concern we are still an ongoing concern?

MCNEALY: We have no interest in buying HP or IBM at this point in time.


CAVUTO: You're ruling that out.

MCNEALY: We're ruling that out. We have got over $5 billion in cash. We have been cash flow positive from operations for 33 straight quarters. Our gross margins improved last quarter 6.1 percentage points, year over year.

CAVUTO: But have either of those guys, Scott, kicked your proverbial tires?

MCNEALY: We are such a different business, in terms of how we are attacking the business, that I can't imagine that first of all, that they could afford us, and second of all, as the largest individual shareholder I would want an all-cash offer. So I don't know if they could afford that.

CAVUTO: If they ever wanted to do an all-cash offer, would Scott McNealy say, now you're talking?

MCNEALY: Oh, you're speculating. I don't speculate. I just can't.

CAVUTO: All right. Let's step back here a little bit and just look at where you see this year going, handicap it for me.

MCNEALY: I do know that more and more devices, more and more technology is getting connected to the Internet more components. I also know that our strategy of building systems complete and assembled is the right answer. You don't build your airplane letting IBM Global Services buy a wing from someplace, landing gear from another, four engines from four different suppliers, upholstery and assemble your airplane for you in your own hangar. That is just the wrong model. And we believe our model is right. We believe open interfaces is right. We believe our position in 64-bit computing and what the Sun Java XML developer base that we have is just a great place to be. The economies are tough worldwide. Germany is not doing so hot. Japan is not doing so hot. The U.S. isn't doing so hot. We do have potentially a war tax on every household here in the United States. There is a lot of uncertainty out there. But the global economy will win out and will grow over the long term. And we plan to be the network computing supplier for the global economy.


CAVUTO: All right. Scott McNealy.

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