Sun To Cut 18% Of Jobs, Reorganize Software Business

Sun Microsystems on Friday said it would cut its workforce by as much as 18% in an attempt to realign its operations to deal with the economic downturn that has contributed to sagging sales, particularly in the company's high-end server business.

In addition, Sun laid out organizational changes that shift the company's focus to its newer businesses in open source software, including the Solaris operating system and MySQL, a popular database. The company also has been moving its storage business toward products that integrate open source software with hardware in a strategy the company calls "open storage."

Sun said it would reduce its workforce by 5,000 to 6,000 employees, or by 15% to 18%. The cuts were expected to reduce costs by $700 million to $800 million annually, starting in its next full quarter. However, the reduction would cost Sun from $500 million to $600 million in one-time costs over the next 12 months.

"Today, we have taken decisive actions to align Sun's business with global economic realities and accelerate our delivery of key open source platform innovations -- from MySQL to Sun's latest Open Storage offerings," Jonathan Schwartz, chief executive of Sun, said in a statement.

The job cuts followed a $1.68 billion loss in Sun's fiscal first quarter ended in September. In addition, Sun has seen its stock price plummet, reaching its lowest level in more than 14 years on Thursday at $3.50 per share. The company's market value is slightly more than $3 billion, compared with $120 billion in the beginning of the decade, when Sun was still flying high from the Internet boom.

Sun's financial woes started with the dot-com bust in 2000 that saw many of its customers go out of business. Sun at the time was a major supplier of high-end servers to power Web applications. Sun is also a major supplier of servers to Wall Street and the banking industry, which has faced major upheaval as a result of the recent home mortgage crisis. Sun reported a 20% drop in sales to banking and investment firms in the last full quarter.

To try and pull itself out of its current financial troubles, Sun is realigning its business around new computer systems that are tightly integrated with Sun software. As a result of the changes, Sun on Friday said that Rich Green, executive VP for software since 2006, will leave the company, and the company's software operations would be divided among two new groups: an applications platform division headed by executive VP Anil Gadre and a cloud computing and developer platforms division headed by senior VP Dave Douglas. What's left of Green's software operations will be folded into the company computer systems division run by executive VP John Fowler.

The latest round of layoffs is part of a trend that started in 2006, which marked Sun's first major round of job cuts. Josh Farina, analyst for Technology Business Research, expects to see a significant reduction in staff in research and development on the hardware side of Sun's business. "Whether or not it's going to be enough is too soon to tell," Farina said of the job cuts and reorganization.

Sun competes with much stronger players, Hewlett-Packard and IBM, in the high-end server market. Starting in the fourth quarter of 2006, Sun has seen a decline in unit sales each quarter, according to TBR. Sun's revenue in the market has been falling steadily since the third quarter of 2007. Sun has seen growth in the lower end of the market, where it competes with the same two companies, along with Dell. The growth, however, hasn't been enough to offset the losses.

Farina believes Sun's focus on open source software linked to hardware could pay off, particularly with the $1 billion acquisition of MySQL AB in January. With the purchase, Sun got the popular MySQL database.

"If Sun can get their foot in the door and talk to these customers and up-sell them software and hardware, then that could be a great comeback story," Farina said. "But I haven't seen Sun do that yet."

If Sun's growth strategy is to work, then it will need time, something the company may not have. Southeastern Asset Management, a Tennessee investment firm, has bought 21% of Sun's stock and said last month that it plans to have discussions with Sun "and/or third parties" about raising the company's stock value, The San Jose Mercury News reported.

Sun is not the only tech company to suffer in the economic downturn. Other companies that recently announced layoffs include Applied Materials, National Semiconductor, and Advanced Micro Devices. Chipmaker Intel this week lowered its outlook for the fourth quarter, saying revenue could fall as much as 19% as consumers and businesses cut back on tech spending.