Sun releases Fire 5,000 plan

Trim now, profit later

By Ashlee Vance in Mountain View • Get more from this author

Posted in IT Channel, 31st May 2006 21:05 GMT

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Sun Microsystems will fire up to 5,000 workers this year, as the company tries to cut costs and make it easier to post quarterly profits.

All told, Sun expects to cleave off between 11 per cent and 13 per cent of its 37,500 person workforce. The firings mark the first mass layoff to take place under new CEO Jonathan Schwartz. Sun has historically been reluctant to let go of staff, despite Wall Street's constant calls to trim costs via layoffs.

Sun did not specify which internal organizations or regions would be hardest hit by the firings. The need for these cuts, however, can be traced to Sun's $4bn StorageTek acquisition that left the company with a swollen workforce.

Along with the job cuts, Sun plans to reduce its real estate holdings by giving up on its Newark and Sunnyvale sites. Sun will maintain its two, sprawling campuses in Santa Clara, which is a haunted former insane asylum, and Menlo Park, which is where the Sun executives work.

"These initiatives are designed to focus and streamline the company and are expected to result in an annual cost savings between $480m and $590m, with the full impact expected to take effect by Q4 of fiscal 2007," Sun said.

Sun revealed that it expects 2007 full-year revenue growth in the "low-to-middle single digits."

Financial analysts will no doubt hammer Sun in the next couple of days for not making deeper cuts. Some of the firmer Wall Street types have suggested that Sun needs to fire between 10,000 and 15,000 workers to bring its workforce in line with revenue. In addition, analysts will likely suggest that Sun has grown too optimistic about its long-term fortunes.

Schwartz tried to counter such fears, saying that Sun's x86 server business is growing, the deceleration in big-iron sales has "leveled off" and software sales are solid. All of these factors lead management to believe that Sun can grow at a steady, albeit modest, rate over the next couple of years.

Sun's results have been hovering just below the break even mark in recent quarters. Today's cuts should push the company into the black during decent three-month periods. And, when it comes right down to it, this is what management wants.

Posting a small, tidy profit will keep many of the critics quiet as Sun continues to rework its business. ®

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