Sun Microsystems to cut up to 6,000 workers, 18 pct of staff
November 14, 2008
SAN FRANCISCO ” Sun Microsystems Inc. plans to cut up to 6,000 jobs, or 18 percent of its global work force, as sales of its high-end computer servers have collapsed.
The drastic move announced Friday highlights Sun’s desperation to cut costs and survive as an independent company. Sun’s shares have fallen so steeply they’ve crossed an ominous threshold, driving the company’s market value below its cash on hand.
That means investors believe the company itself is essentially worthless. After eight years of devastating financial problems and multiple attempts at restructuring, Sun’s latest woes have ramped up speculation that one of the most storied names in computing could be snapped up dirt-cheap by a bigger rival. Hewlett-Packard Co., IBM Corp., and Dell Inc. are all possible suitors.
“The magnitude of the work force reduction is certainly overdue,” said Brent Bracelin, an analyst with Pacific Crest Securities.
Bracelin said the move puts Sun in a better position to return to profitability, but added that the company is facing hard questions about a possible sale or spinning off parts of the business.
Sun shares fell 14 cents, or 3.6 percent, to $3.94 in early trading Friday.
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The Santa Clara, Calif.-based company said the job cuts will include between 5,000 and 6,000 employees over the next year. The cuts should save an estimated $700 million to $800 million annually.
Sun expects charges of $500 million to $600 million spread out over the next 12 months to pay severance and other restructuring-related costs.
Sun also said its software chief, Rich Green, has resigned.
“These are hard but necessary changes,” Jonathan Schwartz, Sun’s chief executive, said in an interview.
He said the company has been deeply wounded by the credit crunch, because customers can’t get loans to buy expensive servers. A quarter of the Sun’s business comes from the ailing financial services sector.
Sun’s share price gives the company a market value of less than $3 billion. Yet at the end of September, Sun had $3.1 billion in cash on hand. The gap indicates extreme pessimism about the company’s prospects.
Sun posted a loss of $1.7 billion in the latest quarter, largely because it wrote down the value of the business by $1.45 billion.