The Biz of Coding

Sun Microsystems Inc. to slash upto 5000 jobs

by Ujwal Tickoo on June 1st, 2006

After starting as the CEO of Sun Microsystems Inc. in the last week of April 2006, Jonathan Schwartz has taken his first big step in trying to return the company to profitability.

Sun Microsystems Inc. is expected to slash close to 5000 jobs over the next six months. This will save the company  US $ 480-590 million annual by 4th fiscal quarter of 2007. The current workforce of Sun is 37,500.

 Seems that Jonathan is expecting the cost-saving to revive the company’s financials; along with Sun Microsystems Inc.’s Strategy of product innovations in:

• Software
• Systems
• Storage and
• Services

Sun’s stock (SUNW), however, has stayed below the junk stock price of $ 5.00 even after the cost-saving announcement. I think what the analysts are looking for is a "real" growth story that will bring Sun back to its old glory days of innovation from Servers to Java.

 Sun lost time & energy in working to build a cheaper Office Suite (now Open Sourced) against Microsoft’s Office suite. Historically, every company that tried to beat Microsoft on the Suite business has lost miserably — Novell, Corel, and then Sun. Ars Technicia poked a joke at the directionlessness of Sun by the accompanying graphic.

Red Herring reports that anti-poison pill has also been scrapped by Schwartz — looking to build value for the company.

Last year, in October 2005; under pressure from shareholders Sun passed an anti-poision pill proposal. Share holders unhappy with the state of strategy and financials of Sun; were thus signaling their readiness for another company to take-over Sun. New.com had reported then:

"The support for the (anti-poison pill) proposal was outstanding. The proposal received more support than the re-election of one of Sun’s directors," said John Chevedden, a representative for Sun investor William Steiner, who put forward the proposal. "The average approval rate is usually around 60 percent."

The anti-poison-pill proposal called for removing Sun’s current poison pill option and reinstituting it only if put to a shareholder vote on a separate ballot. Sun had asked investors to reject the proposal, saying the proposal would limit the company’s ability to negotiate a "fair price" if an unsolicited buyer came knocking.

A poison pill is triggered when an unsolicited buyer acquires a certain number of shares. The poison pill is designed to flood additional company’s shares into the market, making the purchase of Sun a cost-prohibitive move without the Sun’s support.

Although the anti-takeover proposal passed, it is nonbinding.

From the reaction of the stock market atleast now; Jonathan Schwartz seems to have a long way to go. Cost Savings are only a short term solution. Sun’s stock price and future would move up only if the company re-lives its spectacular past track record of innovations & market leadership.

POSTED IN: SUN, Strategy