Sun Microsystems to Cut Up to 5,000 Jobs
Wednesday, May 31, 2006; 10:58 PM
SAN FRANCISCO -- Computer server maker Sun Microsystems Inc., whose revenue has declined four years in a row, said Wednesday it planned to cut 4,000 to 5,000 jobs in an effort to return to consistent profitability.
The cuts, which will reduce Sun's 37,500-person work force by 11 percent to 13 percent over the next six months, will cost Santa Clara-based Sun from $340 million to $500 million over the next several quarters, the company said.
Sun executives expect the plan, which also includes selling real estate and exiting leases, to save the company from $480 million to $590 million, once it is fully implemented sometime around June of next year.
The company, a major supplier of computer servers that run corporate networks and Web sites, was once a Wall Street darling but has struggled since the dot-com bubble burst in late 2000. Servers that run processors based on Intel Corp. designs and Microsoft Corp.'s Windows or the free Linux operating systems have grown increasingly powerful, often performing the same jobs at a fraction of the cost of Sun products.
Investors have driven down Sun shares from a high of about $64 in September of 2000 to a range of about $3.50 to $5 over the past year. Some analysts have criticized Sun's management for not cutting costs more dramatically.
"It's a lot of fanfare without a lot of change to street estimates," said Brent Bracelin, an analyst with Pacific Crest Securities. "The company did the minimum they needed to do based on analyst estimates out there."
Thursday's announcement comes a month after Scott McNealy stepped down as Sun's chief executive, and it's one of the first major initiatives to be taken under the watch of Jonathan Schwartz, who was named to replace McNealy.
Schwartz, speaking on a conference call with analysts, said the cuts are part of a plan for Sun to simplify its research and product offerings around a core set of technologies that include its Solaris operating system and Niagara microprocessor. Rather than trying to win business from the broadest number of customers, Sun will focus on companies that see Internet usage as a key differentiator in the way they compete.
"Our industry is littered with companies that are trying to be all things to all people, and that is not Sun," Schwartz said.
The company also said it planned to sell property it owns in Newark, Calif. and to exit leases at a site in Sunnyvale.
The cuts still don't cut costs as deeply as some analysts have said is necessary. McNealy had argued against more drastic work force reductions, saying talented employees are needed once business returns.
Sun shares fell 1 cent in extended trading following the release. Earlier they rose 8 cents, or 1.8 percent, to $4.63 in regular trading Wednesday on the Nasdaq Stock Market.
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