Fading Fast: Are Sun Microsystems doomed?
Struggling Sun Microsystems, the server and software innovator, is to make around 6,000 workers redundant next year - a massive 18 percent of the company’s workforce.
Sun’s announcement has come amid a crumbling economy with the resulting impact on the manufacturing and financial industries spreading to the technology industry.
Sun is to re-shuffle its software side of the business and plans to merge other departments together. As part of the tightening of belts, Rich Green, the company’s vice president for software, is set to leave the position he’s had since 2006.
Sun have said that the redundancies will save the company around $800 million a year, starting from the next quarter, however it costs a lot of money to lay-off so many staff, so Sun can expect to incur costs of around $600 million to do so.
Andrew Reichman, a senior analyst at Forrester Research, said: “it’s expensive to lay people off”. He say’s its unfortunate for the company, to “lay off that number of people”, and thinks that, “the severance packages will be for half a year to a year, just based on those numbers”.
Reichman noted that IT is suffering tough times at present, with Sun having a particularly rough time.
Sun reported massive losses compared to a year ago. In the quarter ending June 30th, the company reported a 74 percent loss in earnings from $329 million to $88 million. In the same period in 2007, Sun’s quarterly revenue fell 1.4 percent to $3.78 billion, down from $3.83 billion. Sun reportedly earned $403 billion in the fiscal year ending June 30th, down by almost 15 percent from the previous year.
Sun has struggled to compete with large server and software makers like IBM or Dell, and as Reichman said: “Sun has always competed based on performance - not cost.”
“There’s a lot of competition in the hardware space from vendors who can produce higher volumes at lower costs,” he added.
When it comes to software, Red Hat, a Linux server-software maker, are Sun’s biggest competitors.
“The bulk of the market is moving away from Unix and more towards Linux platforms,” Reichman said. “Sun made Solaris open source, and I think it is still figuring out the best way to demonstrate the value of open source Solaris compared to other options. Sun’s struggling to reinvent itself in a changing economy.”
Reichman believes that Sun has the better products, but lack the know how to bring those technologies to the marketplace effectively. However, rather than form a hardcore sales team, Reichman believes that Sun shouldn’t give up its tradition of innovation.
“The risk with so many layoffs, of course, is they could lose some innovation by letting go of this number of people at a time when they need it the most,” Reichman warned. “This is a key inflection point for Sun, and they need their best and brightest to get back on track.”
Like many other hardware and software companies, Sun have been effected by the credit crisis. The financial sector is siphoning money left, right and centre, and those are the customers of Silicon Valley.
“This isn’t a surprise, but it’s definitely a big deal,” Reichman said. “So far, Silicon Valley has not been hit as hard as Wall Street, but the two are very tightly linked. Companies that are related to banks and financial services are struggling. This is the biggest shockwave to hit the technology sector.”
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