Sun to cut as many as 5,000 jobs

Is Sun priming the company for sale?

June 5, 2006—Sun Microsystems plans to lay off as many as 5,000 employees, sell real estate, and "simplify" its product line in an effort to boost profits, its newly appointed CEO Jonathan Schwartz said.

In a conference call with financial analysts, Schwartz, who was appointed CEO a little more than a month ago, laid out a restructuring plan that gave a broad overview of strategic direction that will rest on network computing and IT to support it, but he didn't provide the product-by-product line impact that IT managers look for.

Schwartz said Sun "will be simplifying our product line and reducing duplicative R&D" and highlighted products key to the company's future, such as its eight-core processor Niagara server. But he didn't explain what research and development the company now considered duplicative or how that product line would be simplified.

Similarly, in detailing its headcount reduction, Sun offered only a potential range, between 4,000 to 5,000, or 11 percent to 13 percent of its workforce of 37,500. The company didn't specify what areas in the company will be affected. Sun will also sell its offices in Newark, Calif., and leave some leased facilities in Sunnyvale, Calif. In total, the company is expecting annual savings between 80 million to 90 million from these changes.

Schwartz, a 10-year veteran of Sun, was appointed by its board after longtime CEO and cofounder Scott McNealy stepped down. McNealy will continue as board chairman.

Schwartz took leadership of a company that posted a loss of 17 million on the day of his appointment. Despite the loss, Sun officials pointed to the increasing revenue in its most recent quarter. Sun's revenue for the third quarter of fiscal 2006, which ended March 26, was up 21 percent year over year, totaling .2 billion for the period. The acquisition of Storage Technology last August helped in boosting the revenue numbers.

Despite the financial problems, Schwartz didn't signal a workforce cut and said in April that the company may only need some "pruning."

But what was announced is "a serious layoff," and its impact on the company is yet to be determined, said Charles King, an analyst at Pund-IT in Hayward, Calif. "What I think will be extremely telling is where those layoffs will come from," he said.

Schwartz said the cutbacks won't affect customers and instead said the company will be focusing on products that meet that goal.

"To help you interpret that, we will build all products at Sun from Java, Solaris, StorageTek, and from a newly unified Sparc and x64 Sun Fire platform," said Schwartz, referring in the latter case, to its 32-bit and 64-bit x86 systems.

Three products "that represent the future of such system innovation," said Schwartz include its Niagara servers, some new StorageTek platforms, and "Thumper," a product that combines servers with storage.

Rob Enderle, an independent analyst in San Jose, said Schwartz was "prepping the company for sale."

The heavy focus on cost reduction and research and development reduction, the lack of specifics about how many and whom was going to be laid off, indicated that Sun is trying to make the company more attractive to a potential suitor, Enderle said. "The primary focus on this effort is to prime this company for sale," he said.

Patrick Thibodeau is a senior editor at Computerworld.

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This story, "Sun to cut as many as 5,000 jobs" was originally published by Computerworld.

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