Sun to Cut up to 5,000 Jobs

Sun Microsystems is cutting up to 13 percent of its workforce as part of a growth plan designed to return the struggling tech giant back to profitability.

About 4,000 to 5,000 of Sun’s global workforce of about 37,500 will lose their jobs as part of a plan announced May 31 by the Santa Clara, Calif., company.

The job cuts will occur over the next six months, according to Sun, which also said it is selling its Newark, Calif., campus and facilities it leases out in Sunnyvale, Calif.

Sun officials expect the moves to save the company between $480 million and $590 million annually, with the savings being realized starting in the fiscal fourth quarter in 2007.

They expect to take restructuring charges of $340 million to $500 million over the next several quarters.

The moves come as Sun undergoes a number of changes, most importantly Jonathan Schwartz taking over as CEO for Scott McNealy, who held the post for 22 years.

Schwartz said his first task is to undertake a complete review of the company’s operations and make moves designed to bring the company back to financial health.

Industry observers for years have called for Sun to pare back its workforce to more closely match its business climate, and said they hoped Schwartz would make the difficult decisions that McNealy declined to do.

However, one analyst said that while job cuts were needed, the number may give people pause.

“The sheer size of the number of layoffs may blow a big hole in the fantasy some might have heard [about Sun’s financial health],” said Charles King, an analyst with Pund-IT Research, in Hayward, Calif. “You don’t ax 4,000 to 5,000 people unless you’ve got some serious problems.”

With a new CEO in place, some reorganization is to be expected, King said.

Sun now has to make sure that it doesn’t cut too deeply in its engineering ranks, which could hurt the company’s efforts to remake itself.

Next Page: Moving in the right direction.

In a press conference announcing the moves, Schwartz said he was confident that Sun was moving in the right direction.

“Our enterprise business has slowed but the rate of deceleration has leveled off,” he said.

“Our software business is doing reasonably well [and] the leading indicators are good for all our divisions. We think that the [IT] market is going to continue to grow, and we want to get our fair share of it.”

This is the second round of jobs cuts in the past two months. In April, Sun announced a 7 percent cut—about 200 people—in its Scalable Systems Group, which at the time was responsible for the SPARC server line.

Sun has since merged its two server businesses, which also includes its “Galaxy” servers powered by Advanced Micro Devices’ Opteron processors.

The Galaxy servers are part of a push Sun has undertaken over the past couple of years to remake itself after falling from the top ranks of the tech industry during the Internet bubble.

Along with embracing the x86 space, Sun also has aggressively courted the open-source community, releasing to it such technology as Solaris and its multicore UltraSPARC T1 processor.

To read more about Sun’s efforts to court the open-source community, click here.

Sun also is making a push into the storage space, headed by its $4.1 billion acquisition of Denver-based Storage Technology in June 2005.

Before the acquisition, Sun had no major-league storage products to complement its server business.

By being able to bundle servers and storage as a complete package, much like IBM and Hewlett-Packard have done for years, Sun looked to put itself on a more level playing field when bidding for business against those companies.

Sun has been able to bring some big-time customers, such as Disney and several Public Broadcasting stations, into its customer base by selling them products such as StorEdge 6920 array and its Content Infrastructure System. Schwartz said storage will continue to be a key focus for Sun.

“We’ll be doubling down on areas like Solaris and StorageTek, where we have reason to believe that we can have inexpensive growth,” he said. “The R&D’s all done there, and the markets for those are ramping up.”

King, the Pund-IT analyst, said it was not surprising to see job cuts come during such a time of change.

“When a company is in a state of transition like this, it needs to do two things,” he said.

“One is, you need to keep the faithful happy and satisfied. … At the same time, you need to get ready to make tough decisions.”

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