Sun To Cut 13% of Workforce
By Jessica Davis -- EDN, May 31, 2006
Sun Microsystems plans to cut 11 percent to 13 percent of its workforce, reducing headcount at the company by 4,000 to 5,000 from its current worldwide total of 37,500, in an effort to improve the company’s operating income.
In addition, Sun plans to sell its Newark, Calif.-based campus and leave its leased facilities in Sunnyvale, Calif. The company will continue operations at its two other Silicon Valley-area campuses in Menlo Park, Calif. and Santa Clara, Calif. Sun also will evaluate closing other facilities that the company has gained through acquisitions.
The workforce reduction is expected to be completed over the next six months, and Sun said that decisions would be made in the next few weeks. The cuts are expected to yield a total annual cost savings of between $480 million and $590 million, with the full impact taking effect by Q4 of fiscal 2007, Sun said.
“We are very confident we are making the right decision,” said CEO Jonathan Schwartz in a conference call with press and analysts. And while “everything is on the table” as far as areas targeted for cuts, Schwartz said that field coverage – or technical personnel that help customers in the field – would remain stable if not on the upswing, according to Schwartz.
Sun will cut some R&D expenses, with an eye to reusing R&D existing investments to create more products.
Schwartz said that the company had not yet broken down personnel cuts geographically.
Sun said that its growth plan is designed to accelerate the company’s return to consistent profitability and provides for increasing investment in core technology and channel resources. It is also designed to accelerate acquisition synergies and disinvestments in non-core processes and R&D.
The move follows recent changes at the helm of the computing and software company as Schwartz took the job of president and CEO on April 24, taking over from Sun’s longtime leader Scott McNealy. Sun said that the growth plan is the result of reviews conducted by Schwartz and CFO Michael Lehman.
The company expects to incur restructuring charges ranging from $340 million to $500 million over the next several quarters in connection with the plan, the majority of which will be incurred in the fiscal quarter ended June 30, 2006.
Sun has set a Q4 fiscal 2007 operating income goal of at least 4 percent of revenue, excluding any amounts related to restructuring. The company’s longer term operating income goal is for at least 10 percent of revenue. Schwartz said that kind of margin is achievable with a shift to higher margin products.
Sun said it expects fiscal 2007 full year revenue growth in the low to middle single digits and gross margin of around 43 percent. Sun said fiscal 2007 operating expenses would be in the range of $5.6 billion to $6 billion.
