Sun Microsystems to Trim 9% of Jobs as Demand Slows
Sun Microsystems Inc. will fire 9% of its employees as demand for big computers, already slumping from the Internet and telecommunications collapses, slowed dramatically after the Sept. 11 terrorist attacks.
These are the first significant layoffs at the Silicon Valley powerhouse and mark the end of an amazing growth spurt for the maker of workstations and high-end servers that run computer networks used by many dot-com firms and big corporations.
The Palo Alto-based company said Friday that it will shed 3,900 of its 43,200 workers. About a third of the layoffs will be in the San Francisco Bay Area.
“Our business nearly ground to a halt” in the two weeks after the World Trade Center attack, said Sun Chief Financial Officer Mike Lehman. “We believe the impact will not be limited to the fiscal first quarter.”
Sun said it will miss consensus Wall Street estimates of a 4-cents-per-share loss in its fiscal first quarter ended Sunday, as sales fell to about $2.8 billion from more than $5 billion a year ago. Sun executives said they expect to report a loss of 5 to 7 cents a share for the quarter.
The attacks hurt Sun more than most technology firms, both directly and indirectly. Of 286 trade center tenants, 100 of them had Sun equipment, said J.P. Morgan Chase & Co. analyst Daniel Kunstler.
And some of Sun’s best customers, after those in the ailing telecom industry, were airlines and financial services firms. “There’s some disproportionate pain from their exposure to financial services,” Kunstler said.
Sun said the cuts will reduce quarterly expenses by at least $125 million, and it hopes to return to profitability in the quarter ending in June. After the layoffs are completed, Sun will need revenue of about $3.5 billion to break even.
Sun hired nearly 12,000 workers in the last two years as demand surged for its servers, which were popular with customers that needed to beef up their online operations.
Even as Sun’s sales growth slowed and rivals cut their payrolls, the company avoided job cuts. Other computer firm success stories, from Cisco Systems Inc. to Dell Computer Corp., have cut thousands of jobs this year.
Sun shares rose 58 cents to $9.87 on Nasdaq as the most actively traded stock Friday. The shares have lost nearly two-thirds of their value this year.
Analysts expect most of the job cuts would be in marketing and administrative posts and not in engineering and sales functions.
Sun said it will focus on going after new customers in industries including health care and life sciences. Government and the private defense industry probably will buy more powerful computers, and intelligence agencies are already good customers, Sun Chief Executive Scott McNealy said.
“Our goal in the next six months is to do in these new industries what we did to [Hewlett-Packard Co.] and IBM in telecommunications,” Sun President Ed Zander said.
But in recent weeks, Zander said, every new customer win was matched by an existing customer, often a telecom company, filing for bankruptcy or otherwise signaling deep trouble.
The problem, analysts said, is that although both Sun and IBM have introduced impressive technology in the last month for their largest computers, there is a limited number of buyers, and those buyers have a much-reduced appetite.
“You’ve got a bad economic environment, and the disaster [will] prolong that,” Kunstler said.
“The paradox is that [Sun is] still doing the right thing. They have come out with new products, and they do have a good hold on the loyalty of their customer base. Longer term, I do think they are definitely a mainstay and a pillar of the industry,” he said.
