Sun to lay off 11 per cent of workforce on poor Q1

Sun Microsystems Inc. will lay off close to 11 per cent of its workforce, as the company continues to be punished by a slowdown in technology spending, Sun said Thursday in its earnings report for its first fiscal quarter of 2003.

Sun reported revenue of US$2.7 billion for its first fiscal quarter, which ended Sept. 29, the company said in a statement. This marks a 4 per cent drop from the same quarter a year ago when Sun pulled in US$2.9 billion in revenue. Sun plans to reduce its workforce by approximately 11 per cent – or 4,400 employees – from its current level of close to 39,000 workers.

Workers in the U.S. will be notified of their status at the company over the next month. Employees outside the U.S. will be laid off over the next few months, said Steve McGowan, Sun’s chief financial officer and executive vice-president of corporate resources, during a conference call with press and analysts.

“It’s a tough decision, but I think it’s the right one to go and do at this point,” said Scott McNealy, chairman, president and chief executive officer at Sun, during the call. “I think we are doing this in a reasonable and responsible way.”

Sun, based in Santa Clara, Calif., expects to take a charge of approximately US$300 million in its second fiscal quarter as a result of the headcount reductions.

The company reported a net loss of US$111 million or a loss of US$0.04 earnings per share, Sun said in the statement. Excluding charges for investment losses, previous restructuring costs and tax effects, Sun reported a net loss of US$78 million or a loss of US$0.02 per share, meeting analyst estimates, which excluded these charges. Analysts polled by Thomson Financial/First Call predicted that Sun would post a loss of US$0.04 per share on US$2.8 billion in revenue.

Reports issued earlier this week from Merrill Lynch & Co. Inc. and Sanford C. Bernstein & Co. LLC said that Sun could announce layoffs of up to 8,000 people or 20 per cent of its workforce.

Sun, one of the main providers of Unix servers, has been punished by the downturn in the economy. In particular, the company lost large amounts of business as telecommunications companies pulled back on IT spending.

Sun’s four-processor and eight-processor servers were the top sellers in the quarter, McGowan said. Sun’s services business also grew 8 per cent year-on-year.

Sun turned a profit on its StarOffice productivity suite as well, with more than US$5 million in revenue.

The Sun executives stood by the company’s long-held commitment to keeping research and development spending high even in tough economic times. McNealy expects demand for high-end Unix servers to return as the economy rebounds.

As proof of its technology investments, Sun will roll out dual-core UltraSPARC IV processors next year, McNealy said. In addition, the company will release the first chip technology derived from its acquisition of Afara WebSystems Inc. at this time next year. This technology is expected to include multicore processors for servers with one to four processors.

The company will also continue to rely on its strategy of joining with software makers, resellers and integrators to compete with IBM Corp. and Hewlett-Packard Co., McNealy said.

“We think it’s going to be mankind versus HP and IBM Global Services, and we want to lead that crew,” he said.

Sun expects to return to profitability in the second half of its fiscal year.