Sun CEO Schwartz Plans To Cut Up To 5,000 Jobs

Sun Microsystems' new CEO said Wednesday it will lay off up to 5,000 workers--or as much as 13% of its staff--as part of a $590 million cost-cutting plan at the troubled computer maker.

CEO Jonathan Schwartz and CFO Michael Lehman concluded Sun must "better align expenses with its core business strategy." a Sun statement said. The pair set an operating income goal of at least 4% of revenue for its fiscal fourth quarter and at least 10% of revenue long-term. The company lost $217 million for its most-recent quarter, the third quarter of its 2006 fiscal year.

One of the big questions facing Schwartz as he took over as CEO in April, from his role as COO, was whether he'd make the big job cuts many analysts thought Sun needed and co-founder Scott McNealy had resisted as CEO. Schwartz when he was first appointed said "taking a whack to head count" wasn't in his plans, though he didn't rule out the possibility.

Sun will close its Newark, Calif., and Sunnyvale, Calif., offices and keep its California offices in Menlo Park and Santa Clara. The job cuts will save $480 million to $590 million a year by the end of its 2007 fiscal year. The moves will cost Sun $340 million to $500 million. "We've worked hard to reinvent the entirety of Sun's product line, from software to systems, storage and services," Schwartz said. "It's on that rebuilt foundation, that we are reinventing our business model on a far simpler base and focusing our energies on the automation, energy efficiency, and network innovation at the heart of our technology leadership."

Schwartz wouldn't say where the job cuts are likely to come. "Everything is under examination," Schwartz said in a conference call. Schwartz has assigned long-time CTO Greg Papadopoulos to assess the company's R&D projects to make sure they're targeted to the company's goals. Schwartz promised to have more efficient R&D, such as using the Solaris operating system embedded in products that today use a custom operating system. "We use more of a common pool of R&D," he said.

Sun's other goals in the restructuring include revenue growth in the low to middle single digits for fiscal 2007 and gross margin of around 43%, comparable to its current margin.

Sun also made a number of shareholder reforms, including removing a "poison pill" provision that made Sun more difficult to acquire. But Schwartz downplayed any notion that Sun is looking to be bought: "There's no hidden message."

Chris Murphy is editor of InformationWeek and co-chair of the InformationWeek Conference. He has been covering technology leadership and CIO strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in ... View Full Bio