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| DATE | 2006-05-31 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [NYLXS - HANGOUT] Sun Economic collapse
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Sun Says It Will Cut at Least 4,000 Jobs
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Article Tools Sponsored By By LAURIE J. FLYNN Published: June 1, 2006
SAN FRANCISCO, May 31 — Sun Microsystems, the struggling network
computer maker, announced on Wednesday that it planned to cut 4,000 to
5,000 jobs in the next six months as it tries to return to profitability.
The cuts, which will reduce Sun's work force of 37,500 by 11 percent to
13 percent, are the first major move by Jonathan Schwartz, who succeeded
Scott McNealy as Sun's chief executive in April.
Mr. Schwartz said the cuts would make Sun "leaner and more
efficient" as it works to reclaim market share from Dell, I.B.M. and
Hewlett-Packard. Sun, which is based in Santa Clara, Calif., had its
last big layoffs in 2004, when it shed 3,000 jobs.
But to many analysts, the cuts were not nearly deep enough to turn Sun's
fortunes around.
"We view these cuts as the bare minimum," said Brent Bracelin, an analyst
with Pacific Crest Securities. He added that the cuts, which were largely
expected, were already built into analysts' forecasts.
Mr. Bracelin said that the cost savings that Mr. Schwartz predicted
Wednesday would help Sun meet analysts' forecast for a loss of 2 cents a
share in the fourth quarter, but would not ensure the kind of consistent
profitability Wall Street would like to see.
To cut costs further, Sun also said it would sell or give up leases on
some property. The company expects those moves and the layoffs to save
it $480 million to $590 million a year, with the full impact being felt
by June 2007.
"These are all points on a path, a path we are accelerating from this
point forward," Mr. Schwartz said on a conference call with analysts.
The plan will involve restructuring costs of $340 million to $500 million
over the next several quarters, the company said.
News of Sun's plans for layoffs, announced after the close of regular
trading, had little effect on Sun's shares, which dropped 1 cent in
after-hours trading. Earlier, shares of Sun rose 8 cents, to close at
$4.63. Sun's shares have declined from a high around $64 in September
2000.
The layoffs are part of the company's broad plan to pull itself out
of the malaise it has found itself in since the dot-com collapse in
2000. Since then, the company, once a market leader, has gradually lost
share to more nimble competitors, and has dropped to fifth place in the
market for server computers.
In April, Mr. Schwartz indicated that Sun would soon announce a variety
of cost-cutting measures as part of a 90-day review of its operations. At
the time, he dismissed suggestions that the company might lay off as
many 10,000 employees, saying that cuts that deep could compromise Sun's
ability to sell its most important products.
Also in April, the company announced a quarterly net loss of $217 million,
which it attributed largely to acquisitions. It said that revenue grew
more than 20 percent, to $3.18 billion.
The company is expected to post its fifth annual loss in July when
it reports earnings for the fiscal year that ends June 30. Analysts
are forecasting a loss of 17 cents a share, according to a survey by
Thomson Financial.
Sun said that it hoped to achieve gross profit margins of 43 percent
for the 2007 fiscal year and revenue growth in the low- to mid- single
digits, slightly lower than analysts have forecast.
Analysts polled by Thomson First Call expected Sun's sales to grow 7
percent in 2007 to $13.7 billion.
Sun forecast its operating expenses in 2007 at $5.6 billion to $6 billion,
excluding costs related to restructuring.
Sun also announced that its board had voted to eliminate its poison
pill defense against takeovers, a move that could make the company a
more attractive acquisition target.
Mr. Schwartz warned analysts not to assume that the move was intended
as a way to attract suitors. He said that it was a response to
shareholder sentiment expressed at last year's annual meeting. --
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