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Cuts in Europe and Asia

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Oracle has laid off additional Sun workers in Europe and Asia, according to a company SEC filing.

Back in January, when it ate Sun Microsystems, Oracle bragged that it was hiring 2,000 people to boost its Sparc hardware and Soladfris Unix business, but it looks like a lot more people will be going from the Sun unit than newbies coming in — especially after Oracle took a look at Sun's European and Asian operations.

In an amended 8-K filing with the Securities and Exchange Commission late on Friday (June 4), Oracle said it would be raising the charges associated with a restructuring plan that it talked about at the end of its fiscal third quarter. In that plan, Sun estimated that it would cost $325m to restructure Sun to fit it into the Oracle collective, with $235m of the charges recorded in the third quarter of fiscal 2010 ended February 28.

That's not going to get Oracle to the profit targets it was targeting for the Sun business, which Oracle has said repeatedly (and did so in talking over its third quarter back in March) involves extracting $1.5bn in non-GAAP operating income the Sun business this year and $2bn in fiscal 2012. And considering how screwed up Sun's business model has been over the past several years, what Oracle is proposing to make Sun profitable makes more sense than giving away software, going gung-ho for low-margin servers, chasing revenues in any deal regardless of whether it made any money (and paying sales reps to essentially not care about margins) and ditching a build-to-stock and channel strategy to one based on building to order and Oracle doing most of the big sales. Ironically, creating the old Sun from the dot-com era, in a sense. Minus the jokes.

In any event, it looks like the job is going to be a bit harder. In the amended 8-K filing, Oracle said that the top brass met on May 10 and agreed to extend the restructuring plan from the United States to also include Europe and Asia, and now there will be additional layoffs in these units. (Exactly what they do is unclear). All Oracle said is that new additional charges will now range from $675m to $825m for the Sun restructuring, which "eliminates redundant costs resulting from the acquisition of Sun and reflects improved efficiencies in operations."

Of this incremental cost, $550m to $650m will be related to cutting the Sun workforce, $85m to $115m will be for shuttering factories, and $40m to $60m will be relate to the termination of unspecified contracts (perhaps relating to parts suppliers and manufacturing and design partners). Sun said that employees affected by the amended restructuring plan were notified on May 28 - Happy Memorial Day - and that Oracle would pay off these costs, mostly using cash, through calendar 2011.

Oracle did not divulge how many layoffs were involved, but prior to the Oracle acquisition of Sun, the formerly independent server maker shed 3,000 jobs at a cost of between $75m and $125m. And in November 2008, when former Sun president and chief executive officer Jonathan Schwartz was secretly trying to sell the company to IBM, Sun laid off between 5,000 and 6,000 employees at an estimated cost of $700m to $800m. Say it took the top-end of those numbers to do these two layoffs, and it got a total of 9,000 employees to leave, leaving somewhere around 24,400 employees or so by the time Oracle closed the deal in January 2010.

Oracle is now booking total restructuring costs of $1bn to $1.15bn, and somewhere around 80 per cent of this is to pay severance to laid off workers. Say Oracle hits the high-end of those numbers, wanting to cut as deeply as possible to recoup its investment faste. You're talking something like $920m in charges related to firing workers. If the severance pay is as low as it was during the 3,000-worker layoff in October 2009 - somewhere estimated to be around $45,000 per worker - then that would mean firing around 22,000 Sun employees as part of the Oracle restructuring.

This is not possible, considering how many people Sun had when Oracle did the deal. Even with adding in 2,000 workers, these numbers for payoffs are much too large. The costs per worker must be something closer to what it cost Sun to do the November 2008 layoffs, which averaged around three times as much. Then you are talking about Oracle getting rid of an addition 7,000 workers. Our guess is that Oracle is eliminating somewhere between 7,500 and 10,000 employees.

Perhaps, when Oracle's quiet period ends and it reports its Q4 and year-end for fiscal 2010 on June 24, the company will not only be a bit more forthcoming about the restructuring, but also about what its server and Solaris roadmap really looks like. One can always hope. ®

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