MANHASSET, N.Y. Troubled Sun Microsystems Inc. said Wednesday (May 31) it would cut up to 5,000 jobs and exit several facilities in Silicon Valley in the hope of restoring profitability.
Under the plan, Sun (Santa Clara, Calif.) expects to increase investment in core technologies and channel resources, while accelerating its exit from what the company terms as non-core businesses. The goal is to bring operating income up to 4 percent of revenue by the fourth fiscal quarter of 2007.
To achieve this, Sun said it would slash its workforce, now at 37,500, by as much as 13 percent. In addition, the company said it would sell its Newark, Calif., campus while exiting leased facilities in Sunnyvale. The company will continue to operate two major centers in Menlo Park and Santa Clara.
During a conference call with analysts, CEO Jonathan Schwartz acknowledged the cuts would be difficult for Sun employees, but said he remains "convinced [the cuts] will yield a more profitable company."
Schwartz added that Sun would eliminate duplicate and redundant management functions while simplifying product lines and ending duplicative R&D efforts.
The job cuts alone are expected to save $450 million to $550 million annually, with total cost savings estimated at $480 million to $590 million. Sun expects to incur restructuring charges of $340 million to $500 million over the next several quarters, with the bulk of the charges to be incurred in the fourth fiscal 2006 quarter ended June 30.
For Sun, the restructuring is the first significant action taken under Schwartz, who replaced longtime CEO Scott McNealy in April.
Sun has long been in the financial doldrums despite the success of its Java technology. In its most recent fiscal quarter, Sun posted a $217 million GAAP net loss, a nearly seven-fold increase from $28 million a year ago despite seeing revenue rise 21 percent year-over-year to $3.2 billion.
On the technology front, Schwartz reaffirmed Sun’s commitment to open systems, noting that it will roll its "Thumper" server at the end of June. "The era of custom hardware is pretty much over," Schwartz said, adding that improved server performance can be delivered by more and better operating systems.
Schwartz added Sun recently taped out a more energy efficient version of its Niagara processor targeting the "green" computing market, particularly Europe.