Sun to Cut up to 5,000 Jobs

By Chris Preimesberger  |  Posted 05-31-2006

Sun Microsystems is cutting up to 13 percent of its workforce as part of a growth plan designed to return the struggling tech giant back to profitability.

About 4,000 to 5,000 of Sun's global workforce of about 37,500 will lose their jobs as part of a plan announced May 31 by the Santa Clara, Calif., company.

The job cuts will occur over the next six months, according to Sun, which also said it is selling its Newark, Calif., campus and facilities it leases out in Sunnyvale, Calif.

Sun officials expect the moves to save the company between $480 million and $590 million annually, with the savings being realized starting in the fiscal fourth quarter in 2007.

They expect to take restructuring charges of $340 million to $500 million over the next several quarters.

The moves come as Sun undergoes a number of changes, most importantly Jonathan Schwartz taking over as CEO for Scott McNealy, who held the post for 22 years.

Schwartz said his first task is to undertake a complete review of the company's operations and make moves designed to bring the company back to financial health.

Industry observers for years have called for Sun to pare back its workforce to more closely match its business climate, and said they hoped Schwartz would make the difficult decisions that McNealy declined to do.

However, one analyst said that while job cuts were needed, the number may give people pause.

"The sheer size of the number of layoffs may blow a big hole in the fantasy some might have heard [about Sun's financial health]," said Charles King, an analyst with Pund-IT Research, in Hayward, Calif. "You don't ax 4,000 to 5,000 people unless you've got some serious problems."

With a new CEO in place, some reorganization is to be expected, King said.

Sun now has to make sure that it doesn't cut too deeply in its engineering ranks, which could hurt the company's efforts to remake itself.

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