Sun Microsystems Inc., responding to a technology-spending slowdown and pressure from impatient investors, said it will cut 5,000 to 6,000 employees in the latest of a series of restructuring moves.The one-time Silicon Valley star also announced organizational changes to align its business with what the industry calls open-source software.
"We are adapting the company to the global economy as we and our industry see it," said Jonathan Schwartz, Sun's chief executive officer.
The layoffs represent 15% to 18% of Sun's workforce. The size of the job cuts -- after eight prior restructuring actions -- was widely viewed as overdue.
"They are finally realizing they have to get a lot more aggressive in bringing cost down," said Lou Miscioscia, an analyst at Cowen & Co.
Some analysts have been pushing for even more dramatic action, such as selling some or all of the company. Mr. Miscioscia added that Wall Street may be souring on Mr. Schwartz and thinking "it's time to let somebody else run the business."
But Sun's depressed stock -- which hit its lowest level in 14 years Thursday -- has attracted some big investors. Value investor Southeastern Asset Management disclosed last month that it holds about 20% of the company's shares. And San Diego-based Relational Investors, led by activist shareholder Ralph Whitworth, has accumulated a stake of about 3% since June.
"It's a trophy franchise and it's selling at an incredible price," said Mr. Whitworth, who said he has spoken to Mr. Schwartz. "There is work to do, and they are doing it."
Sun's shares Friday rose 1%, or 4 cents a share, to $4.12, in 4 p.m. trading on the Nasdaq Stock Market. The company's market valuation, which once topped $120 billion, stands at about $3.04 billion, below the $3.1 billion in cash and securities the company reported on its balance sheet as of Sept. 28.
Sun followed a string of high-tech companies announcing job cuts in recent weeks, including Applied Materials Inc. and National Semiconductor Corp. But its problems predate the current economic downdraft.
The company, based in Santa Clara, Calif., has struggled to find a formula for consistent growth since the Internet boom, when its servers were a mainstay for companies setting up Web sites.
Sun's sales collapsed along with the Internet bubble, and customers later gravitated to lower-cost servers based on x86 chips from Intel Corp. and Advanced Micro Devices Inc. -- and away from Sun's Sparc chip technology.
Sun now makes x86 machines, too, but their sales have not made up for slowing sales in more-lucrative high-end Sparc machines. The company has also spent heavily on software and acquisitions without generating much revenue growth.
Its problems were exacerbated as financial-services customers -- one of Sun's biggest customer groups -- began slowing technology spending earlier this year. Revenue declined 7% in the fiscal first quarter ended in September. Sun posted a $1.68 billion loss in the period, including a $1.45 billion write-down related to its 2005 acquisition of Storage Technology Corp.
Sun's restructuring is expected to reduce expenses by about $700 million to $800 million annually. It expects total restructuring charges in the range of $500 million to $600 million over the next 12 months.
Many of Sun's organizational changes are aimed at boosting sales of open-source software, which is designed to let programmers modify the code used to make popular Sun products include the Solaris operating system and MySQL, a database.
One executive who will play a leading role is Anil Gadre, who shifts from chief marketing officer to run a new "application platform" group. Other software, including Solaris, will be shifted to the systems group, under Executive Vice President John Fowler. A third group, under Senior Vice President Dave Douglas, will focus on "cloud computing" -- a term that generally relates to computer-services delivered through the Web.
Rich Green, Sun's high-profile executive vice president of software, has decided to leave the company because many of his products will shift to the systems group, Mr. Schwartz said. Mr. Green could not be reached for comment.
Mr. Schwartz emphasized that sales of another line of machines based on a line of Sparc chips, code-named Niagara, would remain a key focus of the company. Asked if he had considered selling Sun, Mr. Schwartz said, "We are focused on growing long-term shareholder value."
