ial firms, market-share losses to bigger competitors, and a spiraling stock price.
The reduction, which will eliminate as much as 18 per cent of the staff, will shave $700 million to $800 million from annual expenses, Sun said in an e-mailed statement. The moves will cost as much as $600 million in the next 12 months.
The Santa Clara, California-based company is cutting back in response to “global economic realities,” Chief Executive Officer Jonathan Schwartz said. Sun, the fourth-largest server maker, last month posted its second loss in three quarters and said its financial-services customers were curbing orders until they have more liquidity.
“We see the level of concern spreading around the world,” Schwartz said in a telephone interview. “Customers are saying, `I am in pain, and I need budget relief.”’
He sees that as a chance to spread adoption of Sun’s MySQL open-source database applications and Java programming language, which are free. Sun sells servers and service contracts with the software. To take advantage of the opportunity, Sun said it will reorganise its software business. Rich Green, executive vice president for software, will leave.
Sun, down 77 per cent this year before today, rose 4 cents to $4.12 at 4 pm on the Nasdaq Stock Market. A high-flier in the dot-com era — Sun traded at $257.25 in September 2000 — the stock has been under $5 for two weeks.
Valley hurting
Sun is the third company in Santa Clara, at the heart of California’s Silicon Valley, to cut jobs this week as technology companies cope with the worst sales slump since the dot-com bubble burst in 2000. Applied Materials Inc, the largest maker of chip-production machinery, announced plans to cut 1,800 jobs, and mobile-phone chip builder National Semiconductor Corp said it will shed about 5 per cent of its staff.
The Sun job cuts will take place worldwide, with most of the US positions eliminated in the third fiscal quarter, spokeswoman Kristi Rawlinson
said. The company had about 33,000 employees at the end of September.
Schwartz has spent two years overhauling Sun, which posted five years of losses under former CEO Scott McNealy. The company continues to lose market share in servers, the computers that run corporate networks and account for almost half of revenue. Last quarter Sun had a $1.45 billion expense to write down the value of acquisitions.
No leadership change
“There might be a little disappointment today, not in the numbers, but in that you didn’t get a change in leadership announced along with those job cuts,” said Brent Bracelin, an analyst at Pacific Crest Securities in Portland, Oregon.
Five analysts recommend selling Sun shares, four suggest buying them, and 12, including Bracelin, have “hold” ratings, according to data compiled by Bloomberg.
Southeastern Asset Management, based in Memphis, Tennessee, increased its stake to 21 percent of Sun’s outstanding stock last month and said it intended to be more active in corporate governance and management. Relational Investors LLC, run by activist investor Ralph Whitworth, disclosed that it held 5.88 million Sun shares as of June 30.
KKR investment
In January 2007, an investment fund owned by Kohlberg Kravis Roberts & Co bought $700 million of Sun’s convertible notes. James H Greene Jr, a KKR general partner, has been on Sun’s board since January of this year.
“Sun’s actions announced today, while very difficult for employees, bring the company’s cost structure more in line with its revenue,” Greene
said in a statement released by Sun. “Based on Sun’s enhanced product portfolio, including a broad open-source offering, we have encouraged them to pursue a more focused strategy that builds upon these strengths.”
Worldwide technology spending in 2009 will grow less than predicted, research firm IDC said this week, and computer-related companies are trimming forecasts. Intel Corp slashed $1 billion from its fourth-quarter sales goal two days ago.
Spending industrywide will rise 2.6 per cent next year, down from an estimate of 5.9 per cent, Framingham, Massachusetts-based IDC said. Growth in the US will probably slow to 0.9 per cent, less than a quarter the pace IDC forecast in August.
Dire situation
Sales at Sun fell 11 per cent to $1.76 billion in the period ended Sept 28. Server revenue declined 15 per cent, and dropped in every region except for emerging markets.
Sun trails International Business Machines Corp, Hewlett- Packard Co and Dell Inc in servers. In the calendar second quarter, Sun’s share of the $13.8 billion market dropped to 11.8 per cent from 13.4 per cent a year earlier, according to Stamford, Connecticut-based research firm Gartner Inc Sun’s revenue fell in the period, while IBM, Dell and Hewlett-Packard all gained.
The company is struggling to sell its highest-priced servers and many of its recent orders have been for low-end systems, according to Dan Olds, a Gabriel Consulting Group analyst in Beaverton, Oregon.
Louis Miscioscia, a Boston-based analyst at Cowen & Co, said results have been disappointing for seven straight quarters. He compared Sun to a comatose patient.
“You’re hooked up to the machine, everything’s going to keep working because your body is still there, but are you ever going to see that comeback?” he said. “You might be around for 40 more years before you die. That’s the situation.”
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