Sun Microsystems' ( SUNW) shareholders have long grumbled the company might be better off without veteran CEO Scott McNealy. With investors more willing to agitate for change these days and Sun still lagging its peers, the time seems ripe for the malcontents to raise their voices.

At present, any "fire McNealy" movement is far from an inferno and appears unlikely to spark the kind of headlines of the recent shareholder revolt at Disney. But that doesn't mean it's nonexistent or without justification.

Three quarters into a rebound in the server market, Sun was the only one of the top five hardware houses to see fourth-quarter revenue decline vs. last year's levels, according to market research firm IDC. The company is expected to lose money in both this current fiscal year (ending in June) and next year, and Standard & Poor's recently downgraded Sun's debt to junk status.

Sun's stock has traded down 24% from its 52-week intraday high of $5.72 on Feb. 12, closing at $4.35 Thursday. By comparison, the Nasdaq Composite is down 6.3% since Feb. 12.

"Sun's board has not helped management work through the changing market conditions," Banc of America analyst Keith Bachman griped in a recent note downgrading Sun .

"We have been watching the Disney saga play out and can't help but wonder if or when Sun's board will get more active in realigning Sun's cost structure," Bachman wrote, referring to the 43% of Disney investors who voted against CEO Michael Eisner's reelection to the board.

Despite increasing frustration from analysts such as Bachman, prospects are shaky for an overhaul of Sun's management.

Sun's board of directors -- which includes Silicon Valley luminaries such as former Netscape CEO James Barksdale and John Doerr of venture capital firm Kleiner Perkins -- has been headed up by McNealy since 1984. Renowned for his combative, competitive streak, and only 48 years old, he's unlikely to consent to a smaller role.

Another obstacle to change is that corporate governance hounds have bigger fish to fry. California Public Employees' Retirement System (Calpers) has an investment in Sun, but spokesman Brad Pacheco said the $161 billion pension fund has lately been focused on enacting change at Disney. (In mid-April, Calpers will release a new list of companies at which it plans to push for corporate governance changes).

The fact that Lynn Turner, a highly respected governance expert, is on Sun's own board should help immunize the firm against shareholder activism, added Cynthia Richson, a corporate governance officer at the $54 billion Ohio Public Employee Retirement System. Turner, who joined the board in 2002, was formerly chief accountant of the Securities and Exchange Commission and is now managing director for San Francisco-based proxy advisor Glass, Lewis & Co.

"I have full confidence and faith that if things need to be done on corporate governance or accounting, he'll be championing those reforms," Richson said of Turner, who declined to comment for this article.

Still, that hasn't stifled criticism from Wall Street.

Bachman wasn't the first to broach the need for top-level change at Sun. Last fall, Merrill Lynch analyst Steve Milunovich wrote an open letter to Sun calling on McNealy to tone down his strident rhetoric and fill the chief operating officer post that has been empty since the summer of 2002.

On a conference call in October, Goldman Sachs analyst Laura Conigliaro directly asked McNealy whether Sun's board would become more involved in day-to-day management and hire a COO; McNealy said the board supports the current structure.

Contacted for this story, Sun declined to comment on any changes its board may have discussed.

Amid Improvement, Doubts Remain

To its credit, Sun won favorable attention with its plan to roll out low-end servers powered by silicon from chipmaker Advanced Micro Devices ( AMD), although Bachman recently characterized the alliance as "too little, too late."

Some industry watchers say Sun is finally gaining credibility in the fast-growing Linux market, which saw revenues surge 63% to nearly $1 billion in the fourth quarter of 2003.

In February, Sun announced it will bring back company co-founder Andy Bechtolsheim to head up its volume server arm. Bechtolsheim had previously headed up Kealia, a private server technology firm acquired by Sun.

"They wouldn't have brought Andy from Kealia to run the group if it was just window dressing," said Steve Allen, an analyst at Sierra Tech Research. "Andy coming back to run it tells me Scott has finally decided to bite the bullet and support Linux."

Paul McEntire, manager of the ( TPFQX) Marketocracy Technology Plus fund, which has a holding in Sun, rates McNealy "at least average and maybe above average" among CEOs. "I think the biggest problem that Sun has had, which isn't McNealy's fault, is that with the new Pentium 4s, you can buy a $2,000 or $3,000 computer from Dell ( DELL) and handle almost everything you need to do in a small company," he said.

McEntire bought shares last April, when the stock traded in the low $3 range, citing attractive valuations and Sun's entry into the expanding Linux market. Since then the stock has jumped 35.5%, though it slightly trails the 39.2% return of the S&P 500.

Publicly, McNealy has argued Sun has already emerged from its rough patch. "People understand we're going to stick around," he said on an earnings conference call in January, when the company managed to post a rare upside revenue surprise. With cash and short-term investments of $5.2 billion, the company is well positioned to hold up through more tough times.

But the question at this point isn't whether Sun can survive, but why it isn't faring better.

One fund manager said he bought Sun shares as a near-term play on the rebound under way at telecom companies, historically major customers of Sun. But he has larger stakes in Sun's competitors such as Dell because he believes they're likely to hold up better in the long run.

Until Sun can convince investors otherwise, McNealy can expect the murmurs of discontent to persist.