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Sun Micro to cut 18% of its workforce

The computing firm hopes to offset a 27% decline in sales in a worsening economy.

November 15, 2008|Associated Press

SAN FRANCISCO — The economic downturn may be pushing Sun Microsystems Inc., one of the storied names in computing, to the brink of extinction.

The company's servers and software helped stimulate the Internet boom, and its engineering acumen is revered. But the Santa Clara, Calif.-based company never fully recovered from the previous financial crisis -- the dot-com meltdown. And it has been steamrollered by big shifts in the way businesses buy their back-end computers.

Now Sun plans to slash as many as 6,000 jobs, or 18% of its workforce, as it scrambles to cut costs to offset a devastating slump in sales of its high-end servers. Sales of those machines fell 27% in the latest quarter as big customers went under or couldn't get loans to buy the servers.

"These are hard but necessary changes," Chief Executive Jonathan Schwartz said Friday as he disclosed the cuts. Sun shares were up 4 cents, or 1%, to $4.12 on the news.

Sun also said its software chief, Rich Green, had resigned as the company splits its software division into three new business groups.

One will handle Sun's Java programming language -- a key ingredient for many websites -- and open-source database offerings. Open-source software is free software for which Sun sells support services. 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.

Sun's extreme restructuring is what many investors have been calling for. It would follow three rounds of big layoffs in the last three years in which nearly 7,000 jobs were eliminated. Analysts say it gives Sun breathing room to improve its margins and try to return to profitability.

Layoffs might not be enough, though, to preserve Sun as the company is currently structured if losses keep mounting, renewing speculation about a possible spinoff or sale. Fujitsu Ltd., Hewlett-Packard Co., IBM Corp. or Dell Inc. are all potential suitors.

"They still have strong cash on the balance sheet, and they're still generating free cash flow, so they're not dead yet, but the patient is definitely on the respirator," said Rick Hanna, an equity analyst with Morningstar Inc. "I can't imagine for a second the board would be satisfied with Sun's current performance. . . . What's happening with Sun at this point is figuring out how to maximize what's left."

Sun says it is not planning a spinoff or sale. It says cuts are needed to keep Sun competitive in a depressed economy that has also trimmed the sails of far-healthier companies, including Intel Corp. and Cisco Systems Inc.

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