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ComputerWire: IT Industry Intelligence

Sun Microsystems Inc could soon give up to 20% of its workforce an unexpected early Christmas present - the gift of more un-paid time with their families.

Merrill Lynch analyst Steven Milunovich said Sun may cut up to 8,000 jobs this quarter - Sun is due to announce its third-quarter results this Thursday. Milunovich joins Sanford C Bernstein analyst Toni Sacconaghi who is reported to have predicted cuts of between 4,000 to 8,000.

These latest numbers represent a massive jump for Santa Clara, California-based Sun, who earlier this year said it would cut 1,000 staff by December.

If correct, the scale of these cuts would help to bring the company slightly more inline with layoffs experienced my many other computer and systems companies. Computing rival IBM is cutting 15,600 of its 320,000 staff while Palo Alto, California-based Hewlett Packard Co expects to cut 16,800 workers as a result of its merger with Compaq Computer Corp by the end of its fiscal year 2003, instead of the 15,000 originally planned.

Sun refused to comment on reports of job cuts, but the company's finances have - like many vendors - been adversely affected by the spending slowdown. While the company announced a return to profit during the fourth quarter, in July, it also warned of a small loss during the fourth quarter.

For the period ending June 30 Sun recorded sales of $3.4bn for the quarter ending June and $20m net income, compared to an $88m loss a year ago. With special charges removed, net income was $28m, compared to $10m and leading to earnings per share of $0.01.

That profit ended a four-quarter run of losses, but the company warned that it expected revenues to follow normal historical patterns, and slip sequentially on the fourth quarter. This would mean it would report a slight loss for the period.

Furthermore, Sun announced it could face an acquisition-related charge of $2.2bn for its second quarter if it does not see an improvement in share price.

Milunovich said a cut of 8,000 could lower Sun's break-even point from about $3.1bn per quarter to perhaps $2.5bn over time. The analyst noted signs of an imminent reduction are there, as management said it would consider cuts upon getting a better look at fiscal second-half demand.

Chief executive McNealy is reported to have said last week "if Sun isn't making money, we will restructure." Milunovich said the sense of urgency has been heightened by questions at last week's Gartner Group ITxpo about customers' "crisis of confidence in Sun."

Milunovich said, though, the real question is not of viability but relevance, as the company backs an "increasingly retro" Sparc/Solaris combination.

While the company refused to comment, McNealy has indicated that Sun hired too many field staff during recent, boom years. McNealy told press at the company's Networks event in San Francisco, California, in future he would be firmer at saying "no" to potential new hires.

© ComputerWire

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