Sun to lay off 11% of workforce on poor Q1

Sun Microsystems will lay off close to 11% of its workforce, as the company continues to be punished by a slowdown in technology spending, Sun said yesterday in its earnings report for its first fiscal quarter of 2003.

          Sun Microsystems will lay off close to 11% of its workforce, as the company continues to be punished by a slowdown in technology spending, Sun said yesterday in its earnings report for its first fiscal quarter of 2003.

          Sun reported revenue of $US2.7 billion for its first fiscal quarter, which ended September 29, the company said in a statement. This marks a 4% drop from the same quarter a year ago when Sun pulled in $US2.9 billion in revenue. Sun plans to reduce its workforce by approximately 11% -- or 4400 employees -- from its current level of close to 39,000 workers.

          Workers in the US will be notified of their status at the company over the next month. Employees outside the US will be laid off over the next few months, says Steve McGowan, Sun's chief financial officer and executive vice president of corporate resources, during a conference call with press and analysts.

          "It's a tough decision, but I think it's the right one to go and do at this point," says Scott McNealy, chairman, president and chief executive officer at Sun, during the call. "I think we are doing this in a reasonable and responsible way."

          Sun, based in Santa Clara, California, expects to take a charge of approximately $US300 million in its second fiscal quarter as a result of the headcount reductions.

          The company reported a net loss of $US111 million Sun said in the statement. Excluding charges for investment losses, previous restructuring costs and tax effects, Sun reported a net loss of $US78 million, meeting analyst estimates, which excluded these charges.

          Reports issued earlier this week from Merrill Lynch & Co and Sanford C Bernstein & Co said Sun could announce layoffs of up to 8000 people or 20% of its workforce.

          Sun, one of the main providers of Unix servers, has been punished by the downturn in the economy. In particular, the company lost large amounts of business as telecommunications companies pulled back on IT spending.

          Sun's four-processor and eight-processor servers were the top sellers in the quarter, McGowan says. Sun's services business also grew 8% year-on-year.

          Sun turned a profit on its StarOffice productivity suite as well, with more than $US5 million in revenue.

          Looking at worldwide sales, Sun says revenue fell 7% in the US compared to the same period last year. European revenue stayed the same, and revenue dropped 13% in Japan, McGowan says.

          The Sun executives stood by the company's long-held commitment to keeping research and development spending high even in tough economic times. McNealy expects demand for high-end Unix servers to return as the economy rebounds.

          As proof of its technology investments, Sun will roll out dual-core UltraSPARC IV processors next year, McNealy says. In addition, the company will release the first chip technology derived from its acquisition of Afara WebSystems at this time next year. This technology is expected to include multicore processors for servers with one to four processors.

          The company will also continue to rely on its strategy of joining with software makers, resellers and integrators to compete with IBM and Hewlett-Packard McNealy says.

          "We think it's going to be mankind versus HP and IBM Global Services, and we want to lead that crew," he says.

          Sun expects to return to profitability in the second half of its fiscal year.

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