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Analysts see layoffs at Sun

The server giant could cut as many as 8,000 jobs, or 20 percent of its work force, according to a Merrill Lynch analyst. Other analysts also predict layoffs.

Sun Microsystems could cut as many as 8,000 jobs, according to Merrill Lynch.

Such cuts would represent about 20 percent of the server giant's current work force of 39,400, Merrill Lynch analyst Steven Milunovich said in a research note 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 Thursday. Sun spokesman Andrew Lark declined to comment on the report, calling it "rumor and speculation."

Sun is expected to report a fiscal first quarter loss of 4 cents a share on revenue of $2.86 billion, 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 percent of its staff. Additional layoffs would bring it in line with rivals such as EMC, which has had two rounds of layoffs of 23 percent and 7 percent, Milunovich said.

According to Milunovich, a 20 percent layoff by Sun would help the company break even at $2.5 billion in revenue. The company is currently expected to break even at about $3.1 billion in revenue, roughly its second quarter sales estimate.

Other analysts are predicting a smaller round of layoffs, noting that a restructuring may not happen as soon as Thursday.

"We believe that there is a greater than 50 percent likelihood that Sun will announce a major work force 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, (CEO Scott) McNealy must act to get Sun into the black," said Milunovich. "We believe the real question is not viability but relevance."