Asia avoids scorching from Sun layoffs

Server giant Sun Microsystems is telling hundreds of employees Tuesday they'll be losing their jobs if they can't find new ones in the company, but Asian employees will escape unscathed.
SINGAPORE--Server giant Sun Microsystems became the latest high-tech domino to be pushed over by the dire high-tech economy. The company is beginning to tell hundreds of employees Tuesday they'll be losing their jobs if they can't find new ones in the company.

Sun positioned the action as a "redeployment," not a layoff, but the redeployment and attrition will result in 300 job cuts by the end of the year, the company said in a document. Employees will lose their jobs if they can't find a new job at Sun within 60, 90 or 120 days, depending on their job type.

"Redeployment involves refocusing and realigning company resources on the highest priority areas, resulting in some existing positions in the company being eliminated and new ones being created," the document said of the plan. "Sun expects to reassign as many impacted employees as possible."

For its Asia South operations which cover Singapore, Malaysia, Thailand and India, Sun said there were no plans to reduce its current workforce of 900.

Also unscatched were its joint venture operations in Indonesia and the Philippines, which has "more than 100 employees each," a Sun Asia South spokesperson said in an email interview.

"Our fundamentals are solid, our strategy is spot on and we feel we are the best positioned company to take advantage of (improving) economic conditions. We have independent software vendors, integrators (and) service providers all heavily invested in Sun, and this remains a strategic advantage for us," she claimed.

"Sun has stayed focused and we will continue to work closely with our key partners in the region to increase our market share and invest in areas of growth," she said, adding that these areas include healthcare, retail and media and entertainment.

Meanwhile, in the US, Sun spokeswoman Elizabeth McNichols confirmed restructuring Tuesday, saying it was part of Sun's normal process of focusing on strategically important businesses while cutting others. The process isn't expected to cut expenses much, but rather give Sun the best competitive strategy.

"If we don't do a good job of focusing our business in the right areas, our business will suffer," McNichols said. "Just as a part of normal business operating procedures we look at the areas we want to focus on, there are areas we will be defocusing on."

The action affects employees in the server giant's key divisions: computer systems, software, sales and iPlanet software groups, she confirmed.

Less than 2 percent of the company's work force--872 people--will be affected, she said. The redeployment, combined with attrition, will reduce Sun's employee count from its current level of 43,600 to 43,300, McNichols said.

When asked if there were redeployment efforts in Asia South, the spokesperson merely said: "Redeployment is an ongoing process to maintain the highest level of operational efficiency." However, she added that the company currently has vacant positions for "IT architects and other key IT roles" in the region.

The program indicates that Sun continues to hope it will be able to keep most of its employees until the economy recovers, Sanford Bernstein analyst Toni Sacconaghi said in an interview.

"Sun doesn't want to turn the organization upside-down by laying off thousands of people then having to scramble to rehire thousands" when the economy picks up, Sacconaghi said. The company currently has revenue of about US$4 billion per quarter but apparently hopes it will return to the US$5 billion level in two to four quarters, he said.

"I think what Sun has very consciously decided to do is not maximize earnings in the short term and not jeopardize a recovery in future earnings in the medium to long term," Sacconaghi said.

Avoiding major job cuts makes sense, Goldman Sachs analyst Laura Conigliaro said. "Considering we've seen some minor, at least anecdotal upticks (in the economy), one would think their strategy is reasonably sound."

Unlike rivals such as IBM and Hewlett-Packard, Sun has thus far avoided layoffs. But two weeks ago, the company reported its first loss in years as an economic slowdown swept across the globe.

Sun is offering job-hunt assistance to help employees find jobs inside or outside Sun, McNichols said.

Sun profited mightily from the go-go years of the Internet, when start-ups were buying large servers and established companies such as automakers and insurance companies were trying to splice Internet operations into their businesses. Now, though, countless Internet ventures have collapsed and corporations are delaying and canceling orders.

Sun is reorienting its sales force toward large corporate accounts as part of its effort to "turn on a dime" to respond to economic changes.

At IBM and HP, there are more sources of recurring revenue, such as services and support contracts, that keep cash coming in even during periods of expense cuts, Sacconaghi said. At Sun, though, "They hunt big game every quarter, and if the game ain't there, they really feel it," he said.

The economic slowdown has hit Sun at a vulnerable time as it makes the transition to totally new server models based on its UltraSparc III chip, Conigliaro said.

"It's always really unfortunate when you have a new product cycle and it hits a larger slowdown," she said. "It's probably going to mean that UltraSparc III won't see quite the same burst that it might have otherwise."

However, she added, new midrange models are doing relatively well. "The midrange, despite the economic cycle, absolutely was seeing some lift" in the last quarter, she said. And the coming top-end StarCat model, though much delayed, has the potential to join IBM's coming Regatta server to squeeze out high-end Unix server competition from Compaq and Hewlett-Packard.

The job cuts aren't related to Sun's program for improving employee performance, McNichols said. Under that program, the lowest-ranked 10 percent of employees are warned that they must improve.

There is no hiring freeze at Sun, the company said.

Sun has taken measures to cut expenses, including requiring mandatory vacation for the first week of July. For the quarter ended June 30, Sun reduced general and administrative expenses 10 percent compared with the quarter a year earlier, despite hiring that increased the company's employee count by 20 percent, Sun said two weeks ago.

Services likely will be the strategic area in which Sun will hire many redeployed workers, Sacconaghi said. Attrition--which probably will result in at least 1,750 people leaving Sun in the second half of the year--is a key component of the equation, he said. "What they're going to lose in the organization (through attrition) they're going to make up with people in services," he said.

"This program will probably contribute a net loss of a few hundred people by the end of the year," Sacconaghi said.

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