Partners: Sun Job Cuts A Good Start

The Santa Clara, Calif.-based company plans to cut between 4,000 and 5,000 employees over the next six months, sell one of its campuses, get out of unneeded leases, and rationalize R&D and other expenses in an effort to attain its goal of having an operating income of at least 4 percent of revenue during the fourth quarter of its 2007 fiscal year, followed by 10 percent for fiscal year 2008.

Cutting 4,000 to 5,000 people, selling unneeded real estate, and getting out of leases is a nice beginning, said Tom Kuni, president of SSI hubcity, a Metuchen, N.J.-based Sun solution provider who has been calling for the company to return to profitability for years, including a recent two-year stint as co-president of Sun's VAR Council.

"But why is Sun taking six months to do something that should be done immediately?" Kuni said. "Four-thousand to 5,000 is only half of what is needed."

That six-month time table will be a huge distraction at Sun as employees wonder who will be affected and as they start interviewing for new jobs, Kuni said. "They should make the cuts now, and cut more than they need to," he said. "Cut once, cut deep, and not death by 1,000 cuts. This announcement shows Sun still is not making the quick and decisive decisions it needs to."

Rob Wolfe, president and CEO of AvcomEast, a Silver Spring, Md.-based Sun solution provider, said the changes were a long time in coming, but that Sun President and CEO Jonathan Schwartz and CFO Michael Lehman are finally making an impact at Sun.

"The impact on the channel is important," Wolfe said. "Sun needs to return to profitability."

In a presentation to analysts on Wednesday to explain the changes at Sun, Schwartz said that Sun plans to cut even more than 4,000 to 5,000 employees out of Sun's current headcount of 37,500 people over the next six months, but hire new technical and sales support people to improve the company's customer interface.

Schwartz was not specific as to where the cuts would occur, only saying that they would be across the board, including across R&D, sales, marketing, and administrative personnel.

Sun is also cutting out non-core and redundant R&D expenses, said Schwartz. For example, he cited the storage space, where storage devices have processors, operating system, and software different from that of servers. As a result, he said Sun expects to develop future storage products using the Sun's current server processors and the Solaris operating system, with Java being the development platform.

That kind of R&D rationalization is Business 101, Kuni said. "When you buy a company like StorageTek, there has to be economies of scale," he said. "Sun has to get there as quickly as possible."

All the changes, Schwartz said, should leave Sun a simpler company. "I'm convinced they will leave a leaner, more efficient company, one that is also easier to follow from the outside," he said.