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More cost cutting ahead, Sun CEO warns in internal memo

Scott McNealy tells employees that the slowing economy will likely lead to more belt-tightening, but that the company will weather the current tech-sector storm.

Sun Microsystems chief executive Scott McNealy has told employees that the slowing economy will lead to continued cost-cutting and more circumspect hiring, but that the company will weather the current tech-sector storm.

In an internal memo sent Tuesday and obtained by CNET News.com, McNealy boasted of growing market share, praised Sun's "stunning" revenue growth and denied reports of delays of upcoming systems based on its new UltraSparc III chip.

But he also cautioned that an era of fiscal austerity has arrived for the Palo Alto, Calif.-based server maker.

"We will have to adjust. We will have to respond to changing economic situations in our spending and hiring decisions. As the market sorts out its economic uncertainty, we will need to continue the cost controls we put in place this quarter," McNealy said. "Please don't let the wild market rides let us lose our focus."

John Shoemaker, executive vice president of Sun's systems products group, said in an interview Wednesday that Sun's belt-tightening measures include the deferral of some projects.

Cost-cutting memos are quickly becoming a holiday tradition in the high-tech world. Earlier this week, Microsoft CEO Steve Ballmer wrote a memo of his own calling for a more "cost-conscious culture."

Though McNealy didn't have a Top 10 list handy, the often-colorful executive did pull out some of his trademark humor to defuse rumors behind Sun's stock plunge. One of Wall Street's perennial favorites, the stock recently hit a 52-week low.

"I even heard that I played 300 rounds of golf this year. If I had, Tiger wouldn't have won as many tournaments as he did," McNealy quipped.

The words come after several analyst downgrades of Sun's stock. The company, though, isn't the only one being hit. Hewlett-Packard and IBM also have been downgraded because of concerns that a slowing economy will reduce corporate spending on computers.

"There is no question that the U.S. economy is cooling off, especially in the dot-com environment," McNealy said in the memo. "Since March, things have been slowing down incrementally with some amazing deceleration in the last couple of months."

McNealy also blamed energy costs that are "taking a huge bite out of everyone and everything," the federal government's policy on interest rates "given this rise in energy costs," and the devaluation of companies with "crazy market capitalization."

McNealy mixed in some optimism with the gloom and doom, saying the company is "in the best financial condition and market position" in its history.

Analysts have been concerned about whether Sun's revenue growth rates are sustainable, but McNealy wasn't afraid to trumpet his company's results. "Sun has reported stunning revenue growth of 27, 35, 42 and 60 percent for the last four quarters, respectively. That's two to four times the rate of HP, IBM and Compaq and light years ahead of Intel and Microsoft," he said.

He also pointed to several product launches. "We are poised to deliver on-time our most promising portfolio of new product introductions in the March quarter with numerous exciting introductions planned for the rest of the year as well," he said.

".Net this stuff, Microsoft," he added in a barb at Sun's perpetual rival.