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Sun cutting hundreds of jobs

Adjusting to the dire high-tech economy, the server giant begins telling hundreds of employees they'll be losing their jobs if they can't find new ones in the company.

Server giant Sun Microsystems, adjusting to the dire high-tech economy, began 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 seen by CNET News.com. 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."

Sun spokeswoman Elizabeth McNichols confirmed the news 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.

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 $4 billion per quarter but apparently hopes it will return to the $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 12 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.