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Sun Cuts Jobs As Losses Resume

Vendor posts $111 million loss, says it will lay off more than 4,000 workers.
As with many of its peers in the high end of the IT vendor market, Sun Microsystems continues to try to realign its business, cutting costs and jobs in search of profitability. Sun on Thursday disclosed plans to cut its workforce by more than 4,000 and reported a $111 million loss on $2.7 billion in revenue for its first quarter, ended Sept. 29. Revenue was down from the same period a year earlier, when Sun reported sales of $2.9 billion.

The slowdown in sales is contributing to Sun's plans to cut 11% of its workforce, which was about 39,400 at the beginning of this month. In addition to cutting staff, Sun will also eliminate excess office and workspace. All told, the company plans to take a $300 million charge during its second quarter. The layoffs are the second by the company in a year; last October, Sun said it would lay off about 9% of its workforce

Sun sank back into the red after a quarter in which it posted $20 million in net income, its first profitable quarter in a year. However, the first-quarter loss was an improvement from the $180 million Sun lost during the year-ago quarter.

The loss came during a quarter in which CEO Scott McNealy laid out the company's plans to offer intelligent software and network-centric technology designed to help customers make better use of their IT investments. McNealy talked about his company's N1 strategy for creating unified data centers at September's SunNetwork conference in San Francisco, apparently too late to help the company's sales for the quarter. Sun also introduced a Linux desktop client, Solaris on x86, and the Liberty-enabled Sun One Platform for Network Identity within the past three months.

"Sun's performance echoes the uncertainty in IT spending overall," says Tom Dwyer, VP of Internet infrastructure at Aberdeen Group. Sun's real dilemma, he adds, is that its Solaris on Sparc cash cow is being undermined by customers' interest in Linux on Intel-based platforms. Sun has made moves to play in this space, but it will take time before the company sees dividends. Says Dwyer, "They will get through this because they have a large installed base, a strong channel partner network, and an awful lot of their equipment is used as the underpinning of the Internet."