The following appeared in today's USA Today:

CEO McNealy sets sights on Microsoft

MOUNTAIN VIEW, Calif. - Scott McNealy, pugnacious CEO of Sun Microsystems,
bursts into a plain vanilla conference room at Sun's headquarters. He takes
about three minutes to get to his main, rather startling point: "There are
only two computer companies now," he says. "Microsoft-Intel and Sun."

Coke and Pepsi. General Motors and Ford. Nike and Reebok. McNealy claims
that, of the hordes of computer makers and software companies out to
challenge the industry's dominating duo of Microsoft and Intel, Sun stands
alone. Not IBM. Not Netscape. Microsoft-Intel is Coke. Sun is Pepsi.

Three years ago, Sun - which reports quarterly earnings Thursday - was just
a maker of computer workstations that ran on the Unix operating system. Its
customers were engineers. Today, while Unix computers are still by far Sun's
biggest business, Sun's greatest weapon is Java, a computer language
invented at the company. Java is so powerful - making networks of computers
more important than individual computers - that even Microsoft has had to
buy into it. And though computers remain the engine of Sun's earnings growth
- 34% last year - pushing Java and products built around it is what could
make Sun the world's next great computer company, many say. Fortune
columnist Stewart Alsop calls Java's arrival "one of those magic moments in
computing history."

Microsoft heaps scorn on Sun for thinking it can take on the champs.
"There's a Captain Ahab club in Silicon Valley," says Microsoft technology
chief Nathan Myhrvold, aiming the comment at McNealy. "Previous charter
members have run their companies into the ground trying to beat Microsoft."
And yet, the only things in Sun's way are Microsoft and its attempts to
derail Java and Sun, and Sun's own demons, analysts say. One way to
understand how far Sun might be able to go is to look at how it came from
obscurity to the edge of enormity.

In a lot of ways, Sun got lucky. Or, as McNealy puts it, "We do things to
allow ourselves to get lucky."

In 1990, Sun was a company of ups and downs, sometimes making brilliant
workstation products and soaring and other times stumbling. That year,
McNealy first learned about a Sun employee named James Gosling. Sun
co-founder Bill Joy told McNealy that Gosling was the best computer
programmer on the planet, and that Gosling was thinking of leaving Sun.

McNealy sat down with Gosling and made him an offer. "I said, 'Name your
project - what and who and where - and I'll fund it,' " McNealy says.
Gosling pulled in a couple of other young programmers, moved to a site miles
from Sun's headquarters and went to work on TV devices, including a
universal remote control and an interactive set-top box - "nothing that made
sense," McNealy says. Gosling realized that the usual computer languages
were too bulky and unreliable to program those little devices. So he started
work on a new, more streamlined language he called Oak, named for a tree
outside his window.

Java emerges

In March 1995, Sun quietly posted Oak - renamed Java - on a few Web sites.
In May 1995, at a two-hour press conference to show off Sun's Internet
efforts, Sun took about four minutes to introduce Java. "We knew it was
good, but we did not understand what the potential could be," says Eric
Schmidt, CEO of Novell who was the longtime chief technology officer at Sun.

At the press conference, Sun also said it had just signed a deal to include
Java in future versions of Netscape, mostly so Java could be used to animate
Web pages. That was Sun's turning point. While Java bubbled up, Sun at times
struggled. In the early 1990s, the hot workstations were from Silicon
Graphics and Hewlett-Packard. Sun's market share and stock price sank. Sun
needed more.

The Internet boom became Sun's next lucky break. Executives saw that Java
was perfect for the Net. Java programs were small, could travel over a
network and could make a Web page come alive with animations and programs.
More important, Java programs could work on any computer: a Windows machine,
a Macintosh, a mainframe.

Other companies took notice and deals started to roll in - 15 in the summer
of 1995. That's when McNealy grabbed Java and ran with it. "He got on it
with a passion I have never seen," Schmidt says. "That summer, Scott asked
how much we were spending on Java. He said, 'You need to spend $5 million
more this quarter.' I said, 'No way. We can't.' He said, 'Try harder.' "

Schmidt pushed the idea of giving Java away or licensing it cheaply. Sun
wouldn't make money on Java itself but on computers and chips built to take
advantage of Java.

Toward the end of 1995, McNealy got an unusual call from Microsoft. For
years, McNealy had railed against Microsoft and its CEO, Bill Gates, for
creating what McNealy calls "the Microsoft hairball" - stand-alone PCs
jammed with complex software. Sun's founding principal - "The network is the
computer" - is a philosophy that computers should share software over
networks. To McNealy, Sun and Microsoft were heading in opposite directions.

But Microsoft needed to compete against Netscape's Web browser. To do that,
Microsoft had to put Java into its browser, Internet Explorer. So it asked
to license Java. "That's the moment I knew," McNealy says: Java was huge.

Building a strategy

In January 1996, McNealy, Schmidt and Joy put on a two-day meeting for top
Sun executives at a San Francisco hotel. It was all about Java. "Scott
mandated that every group think about Java in its plans," says Ed Zander,
head of the computer-making division.

Zander's division started selling workstations as servers that could run
networks in a new era of "Java computing." Sun Microelectronics went to work
on chips specifically designed to run Java. The chips might go into smart
cards and consumer electronics. At software group SunSoft, all programmers
had to learn Java.

Sun formed a new unit, called JavaSoft, to market Java, license it, and
design programming products that would make Java more useful to software
developers.

Java gave Sun cachet. A Salomon Bros. report says: "Corporate . . . VPs are
meeting with Sun representatives vs. a year ago when the highest-level
manager a Sun sales rep would have called on was an information technology
manager."

It became clear that Java could be more than cute animations. By sending
small, secure programs across a network, Java could make the Internet far
more useful. An airline-reservations Web site, for instance, could send to a
user's computer all the flight information for a route plus software to help
figure out the best choice. The user could check out the information and
make a choice right on his or her computer, without having to send and
retrieve information over the Net.

Network power

Java also could mean that software programs could reside on the network, not
inside each individual PC. Just grab the software off the network when you
need it; delete it when you're done. If that works, desktop computers won't
have to be so powerful because the real power is in the network and its
server computers. And if Java can run in any type of machine, then Java
means computers don't have to run on Intel chips and Windows.

As that realization sank in on the computer industry, Apple Computer handed
Sun another lucky break. Apple, long considered the alternative to Microsoft
and a check on its power, was withering. Into that void stepped Sun and
Java.

Companies that would love to unseat Microsoft, like IBM and Netscape, lined
up as Java supporters. Oracle CEO Larry Ellison became a cheerleader.
Developers jumped into creating Java programs. "It's in the aggregate that
the federation has any kind of prayer of containing Microsoft," says Stan
Dolberg, analyst at Forrester Research.

The media, loving a good fight, publicized the Java vs. Windows joust.
McNealy taunted Microsoft in speeches and quotes. His zeal, though, worries
some who fear his mouth will distract him, distract Sun or help focus the
competition. "He should forget Gates and focus on what his customers are
telling him," says Bob Metcalfe, inventor of networked computing.

McNealy says the Gates-bashing is an act. "If I want press and if I'm
competing against the biggest bully pulpit on the planet, I gotta be
quotable," he says.

Threats come calling

Sun has used Java well to set up its strategic position, analysts say.

Its computers are flying out of factories. That's driven Sun's financial
growth. Revenue for the year ended June 30, 1996, was $7.1 billion, up 20%
from the previous year. Net income was $477 million, up 34%.

Sun is expanding its product line up and down the computer food chain. This
summer, it will push a server for small businesses, code-named Tazmo. It has
introduced the JavaStation, a stripped-down desktop network computer or NC,
to chase the desktop market. Java chips are going into consumer products,
such as VCRs.

As the low-end Java products get on networks, they need to connect to
powerful servers, like the ones Sun makes, to get programs and information.
Sun has turned Java into a unified strategy that feeds on itself.

While JavaSoft is supposed to turn a profit eventually, it's not likely to
become a driver of Sun. "Sun is a hardware company," says Mark Gorenberg,
formerly of Sun and now a partner at Hummer Winblad venture capital firm.
"Everything they do is to sell boxes."

But the boxes are where Microsoft can damage Sun. Microsoft's latest major
success is Windows NT, the version of Windows for networks. Intel chips are
the guts of increasingly powerful workstations that rival Sun's. Intel-based
workstations using NT threaten to eat into Sun's heart and weaken it before
Sun can win with Java. "If they lose the NT battle, they lose big," says Ann
Winblad of Hummer Winblad.

Microsoft's move

Microsoft has been trying to adapt Java to create a version that runs only
on Windows, then persuade developers to write for that version. Microsoft
argues that generic Java programs run too slowly. Java programs built for
Windows run better on Windows. And since most people use Windows machines,
they'd rather have fast Java than Sun's slow Java.

So far, most developers seem to prefer to write for Sun's Java so the
program can run on any type of machine. To counter Microsoft and keep
developers on its side, Sun launched a campaign called 100% Pure Java - kind
of a Good Housekeeping seal for Java programs that stick to Sun's dictates.

Another threat is fragmentation. Sun's partners and perhaps its own
divisions could go in different directions as they try to make money off
Java and battle Microsoft.

If Sun can keep going, it might yet become the next great computer company.
But this is a critical time, as the first real Java applications start to
take hold.

McNealy is the kind of CEO who can pull it off, observers say. He's smart,
focused, fast-moving and good at motivating his employees and the industry.
Under him, Sun is one of the best-managed companies in Silicon Valley,
analysts say. And it has momentum, fans and the direction of computing on
its side. "PCs are pass@e," Metcalfe says. "We are now transitioning to
NCs."

No one thinks Sun will vanquish Microsoft, not even Sun. Microsoft and Intel
will be the major computer power for a long time to come. But Sun is the
coming player, maybe even the biggest and best of the challengers. "At least
we are in the ring," McNealy says.

By Kevin Maney, USA TODAY