Sun making deep job cuts this week, analysts say

Sun Microsystems will lay off several thousand workers this week in a follow-up to a restructuring plan announced a few months ago, analysts said on Monday.

The job cuts may include 25 percent to 50 percent of Sun's customer-facing staff, including direct sales and professional services employees, according to a research note from Wedge Partners, a financial analyst company.

Such a move would make Sun more reliant on channel partners to sell its products.

Sun announced in November that it planned to lay off 15 percent to 18 percent of its workforce, or up to 6,000 employees, in an effort to reduce costs by US$700 million to $800 million annually.

In January it confirmed that it had laid off 1,300 workers as part of that plan, and the cuts this week appear to be a continuation of the same effort, said Ryan Hunter, an analyst with Wedge Partners.

Sun declined to comment, except to confirm that the restructuring is still being implemented. "Sun continues to make important choices to streamline operations and align resources to best address market opportunity and position the company for improved financial performance and long-term growth," it said in a statement via email.

The latest cuts would have been planned before any acquisition talks with IBM got under way, said Dan Olds, principal analyst at Gabriel Consulting, who also said that Sun is making significant workforce reductions this week, including cuts to its sales staff.

Sun is reportedly in talks to be acquired by IBM, though neither company has confirmed any discussions. IBM is said to be examining Sun's contracts and other documents to see if a deal makes sense.

A Sun executive said last summer that the company planned to move its North American business to an indirect sales model for all but its largest customers, so a move to reduce its sales team this week would not be a surprise.

"Effectively we're going to go 100 percent 'channel' below the top 300 or so accounts," Tom Wagner, vice president of Sun's North America partner sales organization, told IDG News Service at the time.

Sun hoped the move would invigorate its channel partners, who would no longer have to worry about competing with Sun for their business, Wagner said at the time. Sun does about two-thirds of its business through the channel, he said then.

Such a move carries some risk, however.

"Sun doesn't have as many exclusive channel partners as HP and IBM," Olds said. "Partners that aren't exclusive to Sun will pitch its products right up to the point when the customer asks them for something else, then they'll turn on a dime and sell them whatever they want. The difference with the Sun guys is that they would keep on pitching Sun products."

Sun's sales force may have been anticipating the job cuts and, as a result, "has been particularly ineffective in the current quarter," Wedge Partners said. "We understand that Sun has had a very weak (fiscal third quarter)," the company said.

Sun's third quarter ends Tuesday and the company is due to report its financial results April 28.

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