More layoffs ahead for Sun

Tech company may shed 6,000 jobs

Sun Microsystems, one of the larger sellers of server computers, has started a broad restructuring that could see up to 6,000 employees lose their jobs. It joins a rapidly growing list of technology companies reeling from the financial turmoil.

Before the stock market opened Friday, Sun disclosed that it will lay off 5,000 to 6,000 workers, or 15 percent to 18 percent of its work force. The company, already dealing with layoffs announced in May, expects to save $700 million to $800 million a year as a result of the moves, while also taking up to $600 million in charges in the next 12 months.

"The focus here is to eliminate some of the inefficiencies that have made it hard to do business with Sun," said Jonathan I. Schwartz, chief executive at Sun, adding that a "new economic reality" has taken hold in the market.

In the past two weeks, several of the technology industry's biggest names have issued dire forecasts.

Last week, Cisco Systems warned that network equipment sales in its current quarter could drop 10 percent. Intel, which produces the chips used in PCs and servers, this week said sales for the current quarter could plummet as much as 19 percent because both consumer and corporate customers had pulled back on spending.

Other Silicon Valley companies tied to the chip industry, including Applied Materials, also have started layoffs.

While many of the companies focus on corporate sales, others closer to consumer markets are suffering as well. Qualcomm, which makes chips used in cell phones, said mobile device makers have suddenly cut back on their orders.

For many companies, the sudden drop in orders started in October and worsened in November.

"Even during the 2000 bust, the decline was more measured," said Ashok Kumar, an analyst with Collins Stewart. "This seems to be going into a freefall."

Sun's change in strategy follows a period of intense scrutiny for Sun, as the company has fought longer-term problems. Sun has battled for years to offset a slow, steady decline in its primary high-end server business.

Defending those sales has become more difficult as Sun's customers on Wall Street curtail technology spending because of the financial turmoil. Sun is more dependent on Wall Street business than rivals IBM, Hewlett-Packard and Dell.

"We were certainly the first to enter this, and I would like to believe we will be the first to exit it," Schwartz said.

Late last month, Sun warned of a "new reality" as it reported a first-quarter loss of $1.68 billion and a 7 percent year-over-year drop in revenue to $2.99 billion. At the time, Sun cautioned that it would probably restructure to bring costs in line.

But while Sun talked of this "new reality," its investors have been reacting to the company's larger issues for some time. Sun's shares have lost more than 80 percent of their value in the past year, reducing the company's market value to $3 billion.

In its last fiscal year, Sun posted revenue of $13.8 billion. Sun has $2 billion in cash.

Southeastern Asset Management, an investment firm in Memphis, has upped its stake in Sun to more than 20 percent in the past year. Recently, it disclosed an intention to talk with Sun's management about ways to make the most of Sun's assets, which include a vast software intellectual property portfolio.

Sun's management continues to remain optimistic when speaking about the company's future, pointing to a number of fast-growing hardware and software businesses. Sun has spent the past few years developing products and acquiring software makers, leaving it with what many analysts consider a strong product portfolio. The challenge has been expanding these businesses quickly enough to offset declining sales from Sun's traditional businesses.

In an effort to push things forward, Sun has realigned its management structure. The moves include the resignation of Rich Green, formerly executive vice president in charge of Sun's software business.