Sun to Cut 13% of Jobs in Bid to End Losses
It took just five weeks on the job for Sun Microsystems Inc. Chief Executive Jonathan Schwartz to decide he had too many employees.
The money-losing computer maker announced plans Wednesday to shed 4,000 to 5,000 jobs worldwide in the next six months -- or as much as 13% of its workforce -- in a bid to return to profitability.
Schwartz, a longtime software executive, took the top spot when Sun founder Scott McNealy stepped down April 24. Despite losing money every year since 2001, McNealy had resisted making further cuts in Sun’s workforce and research and development. He also unnerved Wall Street when he stopped predicting financial results after missing earlier projections.
In his first conference call with analysts Wednesday, Schwartz said he and Sun’s board of directors had carefully considered the advice of investors and analysts -- including recommendations for even more drastic cuts -- before settling on a plan that he said would leave Sun “leaner and more efficient, as well as simpler to understand.”
“We are very confident that we are making the right choices,” Schwartz said.
He said that the Santa Clara, Calif.-based company planned to eke out a 4% operating profit in the quarter ending in June 2007 and that it would aim for a 10% profit in the longer term.
Sun said it would take restructuring charges of $340 million to $500 million during the next several quarters. In total, cutting jobs, consolidating campuses and streamlining research is expected to save $480 million to $590 million, Schwartz said.
In its most recent quarter, Sun lost $217 million, or 6 cents a share, on revenue of $3.18 billion.
Sun shares rose 8 cents to $4.63 before the announcement, then held steady in after-hour trading. The stock has stagnated under $6 since 2002, when it fell by more than half.
The company that once bragged of being “the dot in dot-com” was nearly undone by the collapses in the Internet and telecom industries. Then it was sideswiped by the rapid growth of the free Linux operating system, which is popular among Sun’s best customers -- big businesses.
Although it has long depended on sales of expensive computers, the company has been trying different models, pushing its Solaris software and service contracts and offering networking computers that run on Advanced Micro Devices Inc. processors as well as Sun’s homegrown chips.
Schwartz said the company was going to simplify its research and product lines and stop trying to be “all things to all people.”
“They’re not trying to sell all the technology a company needs, nor are they trying to sell to all companies,” said Forrester Research analyst Frank Gillett. “They are after parts of many companies, where the focus is on how computing can be a big part of that company’s success.”
Gillett said Forrester’s clients were no longer calling with concerns about Sun’s survival. But he said debate continued on how well the company will do.
Some financial analysts remain skeptical, pointing out that Schwartz’s projection for modest increases in sales include the effect of recent acquisitions. They also say the goal of 10% profitability has no deadline.
“It’s clearly not [fiscal] ‘07,” Sanford C. Bernstein & Co. analyst Toni Sacconaghi said in the conference call. “Is it ‘09?”
Schwartz would not commit to a year.
