Sun to Axe Jobs by Mid-2008

Sun Microsystems Inc. plans to lay off an unspecified number of employees by the middle of 2008 as part of a corporate restructuring effort, according to a filing Tuesday with the U.S. Securities and Exchange Commission.

Sun will spend an estimated US$100 million to $150 million on severance packages and other costs, the company said in the SEC filing.

The company declined to say how many of its 34,219 employees it would lay off, or what departments would be affected.

Sun executives decided to make the cuts despite announcing impressive earnings last week. Sun reported on July 30 that it had made a profit of $329 million for the most recent quarter, a striking rebound from the company's performance in the same term last year, when it lost $301 million.

In a conference call with analysts last week, Sun CEO Jonathan Schwartz told investors the company had achieved its goal by cutting expenses and hinted of more cuts to come.

"We're by no means done here, and rest assured we view our progress in FY '07 as the first of many steps to streamline Sun. It's important to note that we achieved these reductions while increasing our focus and commitment to the R&D pipelines and road maps at the core of our business," Schwartz said, according to a transcript of the call.

On Tuesday, Sun confirmed that the layoffs were a new step toward meeting its profit targets.

"Fiscal year 2007, by every measure was a solid year for Sun, with our financial performance meeting our annual revenue plan -- the first time since 2001. While we are off to great start, we need to maintain a disciplined approach to meeting our goals and this action is part of that approach," Sun spokeswoman Stephanie Hess said in an e-mail statement.

"While we need to take action to resize the company for long-term growth and profitability, Sun has made great strides over the past several quarters to reduce costs and streamline operations. This action is just as much about increasing operational discipline as it is about mapping the company's spending to its priorities," Hess said.

Sun needs to make the additional cuts despite its profit last quarter, because the company also posted a drop in revenue, one analyst said.

"What you want to see is an incline in volume and solid profitability; that's where your earnings take off," said Joe Clabby, president of Clabby Analytics. "By cutting costs, you can produce a nice little profit for one quarter, but without the volume, it's unsustainable."

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