Even though he was adamantly against any layoffs, Sun Microsystems’s new CEO Jonathan Schwartz announced today the company plans a net reduction in headcount of between 4,000 to 5,000 positions. That would be an 11 to 13 percent reduction in the company’s worldwide headcount of 37,500.
The cuts would come in what he dubbed “non-core” businesses. The number is a net reduction in light of planned increases in headcount in certain “high value” accounts, such as its Sun Fire servers and StorageTek tape backup businesses.
“I know these changes will be tough for many employees, but they will yield a more valuable company for customers, investors and employees,” said Schwartz on a conference call late on Wednesday.
The news comes on the heels of a real estate consolidation, as the company is closing its Newark campus, a 1.4 million square foot chunk of offices and moving the 2,000 employees at Newark to Menlo Park and Santa Clara offices. Sun also plans to leave a site it leases in Sunnyvale, CA.
The headcount reductions should take place over the next six months, with the gory details due in the next few weeks. Sun estimates charges for severance pay of between $270 and $350 million, the majority of which will come in this quarter. The rest will take place over the first three quarters of fiscal year ’07. When all is said and done, the cuts will save the company between $480 and $590 million.
Schwartz was not specific about where the cuts would be, only that they would be world-wide. He did say Sun would decrease its non-core R&D and redundant management processes but increase investments in Solaris and Java.
When Mark Hurd took the helm of Hewlett-Packard as CEO he assured employees there would only be one round of job cuts and has stuck to that. But Sun would not say categorically that this would be the only round of cuts.
“We believe the number of positions that will be eliminated, when combined with the other cost-cutting measures we’re implementing, will be enough to put us on track for sustained profitability,” a Sun spokeswoman told internetnews.com.
While attending the recent JavaOne conference, Schwartz said he heard a consistent message from customers, that the network is the way customers are growing their markets. “We’re going to focus on companies that see network computing as their principal route to market. The market isn’t shrinking, nor will our field focus or channel presence,” he said.
He said Sun expects to be cash flow positive some time in its 2007 fiscal year, which begins July 1, and achieve a four percent operating revenue growth rate versus FY ’06 by Q4 ’07, which would be one year from now. Sun’s longer-term operating income goal is to reach 10 percent of revenue. It will take some time for the benefits of closing Newark and layoffs begin to affect the bottom line.
Sun also eliminated its Stockholder Rights Plan and amended its bylaws to provide that directors will be elected by majority vote in uncontested elections. The Stockholder Rights Plan was viewed as a “poison pill” plan to protect the company from a hostile takeover, which could mean the company was positioning itself to be acquired.
However, Schwartz said there was “no hidden message, I wouldn’t look for any secret conspiracy there.”
Sun shares rose 8 cents, or 1.8 percent, to $4.63 in regular trading Wednesday on the Nasdaq Stock Market.