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Testing, Testing: Sun Asks Analysts to Wait

CFO Mike Lehman is managing a massive Oracle ERP implementation as part of his effort to turn around Sun's flagging fortunes, and he's not going to rush it.
Vincent Ryan and Tim Reason, CFO.com | US
September 7, 2007

Asked during the dot-com boom if he was the most conservative executive at Sun Microsystems, CFO Mike Lehman replied that being "the guardian of disclosure and expectations" was part of his job.

"I'm skeptical about companies that claim victories before they're real," he told CFO magazine in August 2000.

That same attitude was on exhibit this week, when Lehman described Sun's massive ERP initiative to a roomful of expectant analysts, then told them he planned to delay the company's financial results for a week while he tested the system.

If Lehman, back from retirement for a second stint as CFO, hasn't changed, the same can't be said for Sun. Since Lehman stepped down in 2002, the company has seen its revenue and share price flatten, and last year it faced down an incipient shareholder revolt. Just this week, Sun announced it will ask shareholders to approve a four-for-one reverse stock split in November.

Lehman's return to the CFO desk last February and the company's implementation of an Oracle 11i ERP system are both part of Sun's efforts to revive its flagging fortunes. The scope of the Oracle project is staggering — the company is adopting Oracle's entire suite of applications. Planning for the project began a year ago, and Lehman projects it will take another year and a half to complete. Some 1,000 full-time Sun employees are working on it. "It's not just dunking in an Oracle 11i system and saying we're done," says Lehman. "It's going to change how we do business." The company finished rolling out a government ordering module last year, and this month went live with the general ledger and reporting consolidation piece of the project.

True to form, however, Lehman has been careful not to declare victory, and Sun plans to delay its financial results until November 5. "Historically speaking," says Lehman, "that's about a week later than usual," which will give the company time to test the integrity of the data. Still, he was irritated when Reuters reported his comments to analysts on Wednesday under the headline "Sun delays results, cites new accounting software." He says that suggests Sun's financial results were being filed late. On the contrary, says Lehman, Sun is "announcing on time, before the 10Q and within SEC guidelines."

The delay, Lehman says, is "a prudent thing to do when installing a new system — to give ourselves some extra time." He says Sun needs time to test the system and "ensure that data that feeds into it from [the] old systems is accurate."

Given the scope of the project, one can understand why testing might take some time. The company has a slew of older systems from outfits it has acquired over the years, including older Oracle and SAP systems. All told, today Sun has 1,400 systems managed by EDS in data centers and maintained by CSC. After the Oracle project is over, says Lehman, the company will have 100 to 150 systems, which he says will cut both server costs and the cost of supporting and maintaining the applications.

Indeed, the Oracle project is part of an ongoing effort to reduce operating costs. Since June 2006, Sun has cut nearly 4,000 jobs through layoffs and attrition, and the company announced in August that further layoffs are planned, intended to save $100 million to $150 million during the next several quarters. "There will be [more] people whose jobs go away," Lehman told CFO.com in an interview Thursday.

The third phase of the Oracle implementation, says Lehman, will be of the customer service and support systems, followed by a purchasing system.




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