Analysts forecast layoffs at Sun

Up to 8,000 jobs in jeopardy
Written by Larry Dignan, Contributor

Up to 8,000 jobs in jeopardy

Sun Microsystems could cut as many as 8,000 jobs, or 20 per cent of its workforce, a Merrill Lynch analyst said on Tuesday. Speculation about potential layoffs at Sun has swirled in recent days and is hitting a fever pitch ahead of the company's earnings report on Thursday. Sun wasn't immediately available for comment. Sun is expected to report a fiscal first quarter loss of four cents a share on revenue of $2.86bn, according to First Call. Analysts have cut Sun's earnings targets, but some question whether the company can hurdle even a lowered bar. Sun has already cut 10 per cent of its staff. Additional layoffs would bring it in line with rivals such as EMC, which has had two rounds of layoffs of 23 per cent and seven per cent, Merrill Lynch analyst Steven Milunovich said in a research note on Tuesday. According to Milunovich, a 20 per cent layoff by Sun would help the company break even at $2.5bn in revenue. The company is currently expected to break even at about $3.1bn in revenue, roughly its second quarter sales estimate. Other analysts are predicting a smaller round of layoffs, noting a restructuring may not happen on Thursday. "We believe that there is a greater than 50 per cent likelihood that Sun will announce a major workforce reduction on its mid-quarter call," said Bernstein analyst Toni Sacconaghi. "We are hearing from our contacts Sun may lay off 4,000 to 8,000 people." But layoffs may not be the ultimate cure, said analysts. While improving its earnings outlook, Sun layoffs could hurt revenue in future quarters, said Milunovich. According to Sacconaghi, Sun's last round of layoffs "did lead to some negative customer experiences in the field." Milunovich said Sun's business is hurting because its reliance on proprietary technology such as Sparc and Solaris is "looking increasingly retro". "Sun risks becoming the Apple of corporate computing, cool but less relevant," said Milunovich. The company has countered by offering Linux products and noting it's a survivor with plenty of cash. But to Milunovich, Sun's prospects come down to its positioning in the market. "No longer able to assume revenue growth, (chief executive Scott) McNealy must act to get Sun into the black," said Milunovich. "We believe the real question is not viability but relevance." Larry Dignan writes for News.com
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