Sun CEO will announce thousands of layoffs this Thursday

Sun CEO will announce thousands of layoffs this Thursday

Summary: Sun Microsystems (SUNW) will announce on Thursday a large round of layoffs in a bid to cut about one-half billion dollars in annual costs as it transforms itself into a broad based computer software and services company. Jonathan Schwartz, CEO of Sun, will make the announcement to staff and investors, said a Sun source.

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TOPICS: Oracle
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Sun Microsystems (SUNW) will announce on Thursday a large round of layoffs in a bid to cut about one-half billion dollars in annual costs as it transforms itself into a broad based computer software and services company.

Jonathan Schwartz, CEO of Sun, will make the announcement to staff and investors, said a Sun source. The cuts are expected but the timing was not known.

On May 31, Sun said it would have to cut 4,000 to 5,000 staff over the coming six months. This represents about 11 to 13 per cent of its global workforce of 37,500. Sun said the layoffs would provide cost savings of between $480m and $590m annually by its fourth fiscal quarter 2007. The layoffs will be the first under Sun's new CEO Jonathan Schwartz, who recently replaced co-founder Scott McNealy.

Sun's culture makes layoffs a very difficult decision and one that its long serving top executives would rather avoid. Sun's software business model is based on charging a monthly license fee per user for support services and maintenance. Scott McNealy, co-founder of Sun, stepped down as CEO in April after 22 years as the company's top executive. Ed Zander, former president of Sun, and now CEO of Motorola, left Sun in 2002 and said in an interview that managing Sun during the downturn was very challenging.

Sun's culture is accustomed to very fast growth, it is used to hiring thousands of staff rather than laying them off. During the boom years of Internet 1.0, Sun's hardware business was growing at 40 per cent plus annually. The margins on its SPARC-based servers were among the most lucrative in the industry. Sun used to boast in its marketing literature that it put the "dot" in dotcom because of its huge customer base in Telco markets and among Internet startups.

This close association with the growth of the Internet hit the company hard during the dotcom bust. It had to cut people and change its strategy. It now has a broader based revenue model that focuses on IT solutions, which includes hardware, software and IT services.

This is a model IBM adopted under its former CEO Lou Gerstner in the mid-1990s. And it's a model that Sun rival Hewlett-Packard also adopted. Although the business models are similar, Sun, HP, and IBM have large differences in their business focus. One thing they now all have in common is that they have embraced open source software and open industry hardware and software platforms.

Sun, however, is a late entrant to open source markets. This week it celebrated its one year anniversary of the release of an open-source version of the Solaris operating system.

Tom Goguen, vice president of marketing for Sun's Solaris group said, "I'm very pleased with the adoption rate of open Solaris with more than 5m licenses. I'm not saying all are in production, but it is more than Red Hat, or any other Linux distribution. And I'm very happy with revenues from this group."

Tom Goguen 

Tom Goguen: 'Pleased with the adoption rate of open Solaris'

 

Mr Goguen said he was prepared to release the financial numbers for his business group on Monday evening at a press event but Sun's lawyers stopped him at the eleventh hour. He said he conferred with Sun CEO Jonathan Schwartz who gave him the green light, and he said he hoped to release those numbers very soon.

Sun's embrace of open source--by releasing an open source version of Solaris--took time because there were many legal and trademark issues, said Mr. Goguen. Its open source push includes open source middleware, related components such as virtualization, and web services applications.

Sun's software business model is based on charging a monthly license fee per user for support services and maintenance. Its other revenues come from hardware and IT services.

Advanced Micro Devices' Opteron server microprocessor has become a key part of Sun's revamped server line, providing users with substantial savings on electric power. Electric power consumption has become the single most limiting factor in the expansion of many computing facilities.

Some data center centers are at the limit of their allocated power consumption. By installing low power consuming servers they can increase their processing power plus save millions of dollars in annual operating costs.

These new product lines could help rebuild revenues and profits, but Sun will have to prove that it can compete against Hewlett-Packard, IBM and others, to provide data centers with fast servers running on less electric power, plus provide advanced data center management tools to reduce IT labor costs.

Sun's strategy also includes computer grids as a future significant revenue source. It is building and operating computer grids and offering hosted services for scientific applications. It hopes others will follow its example and build large data centers using its hardware and software.

Sun says Google is among licensees for its software and it claims 85 per cent of Fortune 100 companies have also registered as licensees.

Topic: Oracle

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15 comments
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  • 120 grand a piece

    No WONDER Sun is having problems! Maybe if they were located in Idaho instead of Silicon Valley, they wouldn't have to pay so much for workers.
    Roger Ramjet
    • Fully loaded cost

      The worker doesn't make $120,000. It costs the company $120,000 for salary, benefits, overhead, facilities, services, etc.
      archerjoe
      • No sh^t Sherlock

        Ya think?
        Nobody_really
    • Don't you mean Bangalore, not Idaho?

      :D
      HypnoToad
  • more money for lawyers

    >" Sun's lawyers stopped him at the eleventh hour. He said he conferred with Sun CEO Jonathan Schwartz who gave him the green light, and he said he hoped to release those numbers very soon. "<


    just goes to show - java aint worth a hill of beans.
    not of this world
  • Say what???

    "as it transforms itself into a broad based computer software and services company."

    HUH??? What software, you gave away all the software that was worth anything? I guess services in this case means backup and storage because I can't think of any other services they sell at a profit.
    No_Ax_to_Grind
    • Nobody sells software anymore...

      ...the new model is to charge a monthly/yearly fee to cover maintenance. Nothing is ever given away for "free" :-)
      foremski
    • Software licensing.

      You can get the base version for free - but patches come for a price.

      And thanks to virus writers, Sun is guaranteeing itself quite a juicy, perpetual kitty by exploiting their customers like this. While their platform is undoubtedly more secure, we all know an unpatched workstation or server is a far easier target than a patched one.

      It's depraved, but it's perpetual revenue once they lock people into their platform.

      Just like how Microsoft will eventually try to do; we all thought "Software Assurance" didn't do much assuring (no new products have been released since its inception in 2003; people have been paying into NOTHING and expecting to be able to use new versions as they come out...)
      HypnoToad
      • Re: Software licensing

        "patches come for a price."

        Not true. Please check out http://sunsolve.sun.com/search/document.do?assetkey=1-9-83061-1, where it says:

        Customers can access all individual Sun Operating System Updates (Patches) with the exception of third party and software updates for the Java Composite Application Platform Suites (JavaCAPS) with only a Sun Online Account and the acceptance of the Software License agreement.
        napoliroma
  • STK at risk?

    I wonder how the recently acquired STK folks feel about this reduction. Further: How will Sun's customers respond?
    robb.macomber@...
  • Where's Murphy?

    Quick Murph, your shares are falling - another article about the great SUN should do it.
    TonyMcS
  • Sun late to open source

    Article sez:
    "One thing [Sun HP, and IBM] now all have in common is that they have embraced open source software and open industry hardware and software platforms"

    "Sun, however, is a late entrant to open source markets."

    Uh huh, since Solaris has been open source for only a year, putting them far behind IBM with AIX, which was open sourced, oh, when was it again? And HP with HP-UX, which went open source on... oh man, it's on the tip of my tongue...

    I'd believe IBM and HP were much stauncher open source advocates if any software package of note they actually *own* had been open sourced. Sun, meanwhile, has many projects to their credit, most noteworthy being Solaris and OpenOffice, both of which they not only have put in the open source community, but they continue to develop and support as well.
    napoliroma
    • Sun is only late to reinventing themselves

      IBM and HP still don't produce their own Open
      Source OS. Though IBM adds and supports a lot of
      kernel features in the Linux kernel, I am not
      sure that IBM sponsors any particular
      applications, offhand, and they certainly do not
      have their own Open Source operating system. HP
      has been involved in various Open Source
      projects, but to my knowledge, they don't sell
      their own Open Source operating system, and I
      don't know of any major application in which they
      are the major sponsor, either.

      IF anything, Sun is the first OS vendor who has
      stuck their neck out, first by purchasing Star
      Office and sponsoring its release and replacement
      as Open Office, then in taking the hard steps to
      untangle licensing restrictions from multivendor
      committments to Open Source Sun Solaris.

      Sun has been late to simply opening up the world
      without putting mechanisms in place, but I do not
      fault them for that. IF I were to fault them,
      I'd first fault IBM and HP, then fault all of the
      other hardware and software vendors along with
      them, none of whom are willing to go all out with
      Open Source Software.

      I believe that you can change the model from the
      traditional model, share the costs of software
      development across the entire industry and share
      software source code, fueling innovation, at the
      risk of losing license revenues, but with the
      huge potential of whole new worlds of innovation
      that you can jump start.

      Suppose that we cut down the number of distinct
      OS out there, but instead of firing all that
      sharp OS talent, putting some into OS research
      and development, some into new product
      innovation, and some into Open Source
      development. Seems to me that all of these
      stumbling companies could breathe new life into
      themselves. IBM, HP, and Sun are all faltering.
      Wouldn't some new blood and new life be a GOOD
      THING?
      masinick@...
  • Unions in America have forced jobs out of the country

    These jobs are moving to non-unionized countries with low standards of living. Even though High Tech is not unionized, the benefits that unions have gained for all Americans is to blame for our inability to compete with the third world.

    We would probably still have these jobs if Americans were willing to live in factory apartments and work 12 hour days, like they do in the countries where our old jobs now reside. But we have unrealistic expectations of comfortable retirements and nice homes.

    If you think that we shouldn't be forced to compete with the Third World, support the bi-partisan Employee Free Choice Act. The EFCA enforces the democratic rights of employees, but is blocked in Congress by the current Republican leadership. The EFCA also protects small businesses from unfair competition from multinational corporations that abuse the rights of American workers. The EFCA provides workers with the right to freely discuss issues affecting their jobs, and gives them the opportunity to act in concert for mutual aid.

    Our group, www.agilepeople.org is mounting a grassroots effort to restore faith in Democracy and the American dream by promoting the EFCA. Please help us spread the word and ask your Congressman to support democracy for American Workers by voting for the Employee Free Choice Act.

    Disclaimer: Agilepeople is not endorsed or affiliated with Agilent Technologies, Inc.

    Agilepeople Note: The above disclaimer was placed at Agilent Technologies request to prevent confusion over sponsorship. Agilent does not sponsor Agilepeople. The founder of www.agilepeople.org is an ex-employee of Agilent that resigned in protest over their outsourcing practices and the inability of the National Labor Relations Board to resolve labor disputes in a timely manner.
    www.agilepeople.org
  • it's not the employee pay

    Sun exec pay and stock options has quadrupled in the last year (per Exec). And this is while the company is doing poorly. No wonder the shareholders are pissed!

    http://www.bizjournals.com/sanfrancisco/stories/2006/09/18/daily29.html?surround=lfn

    http://news.com.com/2100-1014_3-6118731.html?part=rss&tag=6118731&subj=news


    John
    JohnAdams1st