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Sun layoffs hit high-end server group

Company cuts 7 percent of Sparc server group employees in latest effort to reduce expenses.

Sun Microsystems, which has gone through several layoffs in a struggle to return to profitability, confirmed on Friday a new round that affects its Sparc server group.

Seven percent of the Scalable Systems Group's employees were notified this week that they'll lose their jobs, the Santa Clara, Calif.-based company said in a statement. The cuts affected about 200 people, Sun said.

The Scalable Systems Group, led by Executive Vice President David Yen, builds servers with two to 72 UltraSparc processors. In the dot-com era, the company made billions of dollars in revenue from the larger multiprocessor models. Now, however, three-fourths of server revenue comes from lower-end systems--including x86-based models such as the recently introduced "Galaxy" line.

The cuts don't mean a change in Sun's broader plans, the company said. "Sun's overall strategy remains the same, and our product road map is as strong as it has ever been, with no significant changes," it said in the statement.

Sun didn't rule out the possibility of more cuts. The layoff this week was part of a quarterly assessment that now takes place at all Sun business units, spokeswoman Stephanie Hess said.

Sun has been reducing costs annually for years, and it made at least 13,000 job cuts between 2001 and 2005. Despite this, its payroll and expenses increased dramatically with the completion of the acquisitions of StorageTek and SeeBeyond, and its revenue generally hasn't rebounded.

In the third quarter of 2005, Sun's expenses rose 17 percent, compared with a year earlier, to reach $1.27 billion. In the fourth quarter, they grew 36 percent to $1.6 billion. And from the third to the fourth quarter, employee headcount increased 31,900 to 38,800--8,100 of them from the acquisitions.

However, Sun has released several new products, including Galaxy and UltraSparc T1 "Niagara"-based servers, that some analysts expect could improve the company's financial affairs.

Sun reports financial results for the first quarter of 2006--its third fiscal quarter--on April 24.