Sun Microsystems To Cut Up To 6,000 Employees, 18% Of Work Force

SAN FRANCISCO - Sun Microsystems Inc. plans to cut up to 6,000 jobs, or 18 percent of its global work force, as sales of its high-end computer servers have collapsed.

The drastic move announced Friday highlights Sun's desperation to cut costs and survive as an independent company. Sun's shares have fallen so steeply they've crossed an ominous threshold, driving the company's market value below its cash on hand.

That means investors believe the company itself is essentially worthless. After eight years of devastating financial problems and multiple attempts at restructuring, Sun's latest woes have ramped up speculation that one of the most storied names in computing could be snapped up dirt-cheap by a bigger rival. Hewlett-Packard Co., IBM Corp., and Dell Inc. are all possible suitors.

"The magnitude of the work force reduction is certainly overdue," said Brent Bracelin, an analyst with Pacific Crest Securities.

Bracelin said the move puts Sun in a better position to return to profitability, but added that the company is facing hard questions about a possible sale or spinning off parts of the business.

Sun shares fell 2 cents to $4.06 in midday trading Friday.

The Santa Clara, Calif.-based company said the job cuts will include between 5,000 and 6,000 of its 33,000 employees over the next year. The cuts should save an estimated $700 million to $800 million annually.

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Sun expects charges of $500 million to $600 million spread out over the next 12 months to pay severance and other restructuring costs.

Sun also said its software chief, Rich Green, has resigned, as the company splits its software division into three new business groups. One will handle Sun's Java programming language and open-source database offerings. Another will be responsible for Sun's Solaris operating system, which is used to run servers. The third will focus on developing programs for "cloud computing" services delivered over the Internet.

"These are hard but necessary changes," Jonathan Schwartz, Sun's chief executive, said in an interview.

He said the company has been deeply wounded by the credit crunch, because customers can't get loans to buy expensive servers. A quarter of the Sun's business comes from the ailing financial services sector.

Schwartz said the restructuring of the software division reflects the company's increased focus on open-source software, whose underlying code is available for free. Sun's strategy, which some analysts believe isn't paying off as promised, is to sell support services for that software.

Schwartz said he's pleased with the company's process in picking up new customers through its software offerings.

The company's problem is "isolated to a single line item": sales of its high-end servers, which fell 27 percent in the latest quarter to $576 million. That's a staggering shortfall for a division that contributes a quarter of Sun's overall revenue. Sun's sales last year were nearly $14 billion.

"Across the board we feel great about our direction," Schwartz said.

Breaking up the business units also serves another purpose: it packages them nicely for possible spinoffs or sale, analysts said.

Sun's share price gives the company a market value of roughly $3 billion. Yet at the end of September, Sun had $3.1 billion in cash on hand. The gap indicates extreme pessimism about the company's prospects.

Sun posted a loss of $1.7 billion in the latest quarter, largely because it wrote down the value of the business by $1.45 billion.

At the height of the dot-com boom, Sun's stock price, adjusting for splits since then, topped $250 per share. The company was riding strong sales to Web startups and boasted that its servers "put the dot in dot-com," a catch phrase that became a punch line after the meltdown when Sun's sales shriveled.

The company has done several rounds of big layoffs in the last three years. Sun has cut 2,700 jobs since August of last year in two separate restructurings. The company had previously cut about 4,000 jobs after Schwartz took over as CEO from co-founder Scott McNealy in 2006.

Comments

[vinyllover]

Sun has been on a downward spiral ever since the dot com crash. KillTheMessenger is right. Servers became a commodity years ago and Sun never figured out what to do next. This should come as no surprise to anyone. Its a high profile but weak company in the technology world.

[KillTheMessenger]

It's kind of sad. I talked to the HP workstation designers who were showing their final machine in the late 1990s or maybe 2000 or so (can't remember the exact year). It was a marvelous design. One of the finest PCBs I have ever seen and a beautiful thermal solution. Nobody was at their booth besides me. Nobody cared. The PC had won. Windows had won.They knew that the time for UNIX workstations was up and that their design department was already on the chopping block. I enjoyed talking to them and they were glad that at least one engineer marveled at their achievement. But in reality it was a funeral.

Somehow it seems to me that Sun has "survived" the funeral of its server business more than once, and that's not a good place to be.

[vandegrasse]

So why is that S-B smiling?

[mrcontinental]

Profits Uber Alles baby!

[woody7]

I havent heard this mentioned yet, but shouldn't we just cut off all visas for work for awhile? I don't want to hear that we need foreign workers, which is just a euphemism for cheap labor. Just freeze all quotas for at least 18 months, quit importing foreign goods (not being phobic,but tired of getting blamed as the cause for all this) and keep more americans working,,,,,,,,,

[EinChicago]

Ummmm. You mean try a nerw Smoot hawley Tarriff Act.

Yeah that worked so well the first time.

[joebaggadonuts]

I wonder if it matters that we were on a Gold standard then.

[thegreatgiginthesky]

Yea but not all workers getting laid off can do the work that foreign workers are doing. You can't hire someone who was fired from a call center to write software.

[iambusto]

6000 out of an employee base of whopping 33000 is chump change.

btw, Citigroup announcing today it would shed 10% of its global workforce. that number comes out to be 35000 from its 350000 global workforce !! WOW !!

[joebaggadonuts]

It's not cc to any one of the 6000, and it's more than 10% percentage wise. Also it depends on who is counting. If you are going to have to pay benefits, the Citigroup number is clearly more important. If you are hoping to survive as a company, losing more than 10% seems bigger. The streets are now awash with financial types, and the layoff of a lot of engineer types to be hitting the streets is something else again. I really think it's hard to compare the numbers so glibly.

[kroltan]

joebaggadonuts is right. Most of the layoffs will occur in the US because the emerging global markets are doing pretty well for Sun right now - Europe and US sales have slumped. Jobs are becoming scarce in the US - how about a little compassion for your fellow Americans, iambusto? By your use of the term "chump change", I'm assuming you're a US citizen.

[BlueZoo]

I don't know know about your newspapers but every morning I open the Business section of my paper and see more and more layoffs. A printing company here laying off 300. An ad agency laying off 125. It's endless and this is just Atlanta. Mom & Pop stores are closing at alarming rates. Just down the way, a locally owned lighting company is going out of business. We don't hear of these small companies going under, just the big ones. I firmly believe we're in a lot more trouble in this country than we're being led to believe.

[KillTheMessenger]

Servers are now a commodity. I don't blame Sun for not being able to compete in that kind of business. I do blame them, however, for not finding a different business model. Sun still wants to be a hardware company and reality says it can't. Time to make a switch, although, their software offerings won't make life easy for them, either...

[bluguy8]

Sounds like this is another CEO thats failed and its time for him to leave the roost