Sun Board OKs Growth Plan, Layoffs

Sun Microsystems’ board of directors has signed off on a company plan to return to profitability that will include between 4,000 to 5,000 layoffs in the next six months, the company said Wednesday.

Sun, which has never fully recovered from the dot-com bust, has posted a string of losses or near break-even results over the past five years. For its most recent quarter, the company reported a loss of US$217 million.

Sun said it will cut about 11 percent to 13 percent of its workforce, or about 4,000 to 5,000 employees, over the next six months. It will also sell off its campuses in Newark, N.J., and Sunnyvale, Calif., while retaining its operations in Menlo Park and Santa Clara, Calif.

From those actions, Sun expects annual savings of between $480 million and $590 million and to incur restructuring charges between $340 million and $500 million. The charges will be spread out over the next several quarters, but the majority will be incurred in the quarter that ends June 30, 2006, the company said.

Sun’s board also approved the company’s operational goals, which include fourth-quarter operating income of at least 4 percent of revenue and longer-term operating income of at least 10 percent of revenue. The operating income and expense expectations exclude restructuring charges, but include charges related to stock-based compensation and amortization of purchased intangibles.

Other goals for the company include revenue growth in the low-to-middle single digits, gross margin of about 43 percent and operating expenses of about $5.6 billion to $6 billion for fiscal 2007. Sun’s fiscal year begins July 1.

The move comes on the heels of one of the first major executive realignments at Sun since Jonathan Schwartz stepped in as chief executive officer in April, replacing cofounder Scott McNealy, who is still chairman. Sun last month combined its Sparc and x64-based server groups under one umbrella group, now called the Systems Group, and tapped John Fowler as executive vice president of the new group. Fowler formerly headed up the group responsible for Sun’s x64-based servers that use Advanced Micro Devices Opteron processors.

David Yen, formerly executive vice president of Sun’s former Scalable Systems Group—which managed the company’s Sparc-based servers—will now serve as executive vice president of Sun’s storage group. As part of the shake-up, Mark Canepa, who has been with Sun for a decade and most recently headed up Sun’s storage group, is leaving the company.

-Shelley Solheim, IDG News Service

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