Update: Sun confirms it's cutting 1,500 jobs this week

New layoffs continue cutbacks announced in November; sales and service workers included

Sun Microsystems Inc. confirmed late Monday that it is laying off about 1,500 employees this week as part of the restructuring plan that the struggling company announced last fall.

The job cuts will involve a portion of Sun's customer-facing staff, including direct sales and professional services employees, according to a research note from Wedge Partners Corp., a financial analysis firm in Denver.

Wedge Partners claimed that 25% to 50% of those workers may be affected, and it said that such a move would make Sun more reliant on channel partners to sell its products.

In response, Sun said the actual percentage of customer-facing staffers being cut is significantly lower, although it wouldn't disclose the specific figure. The vendor added that the layoffs will affect employees at all levels, including vice presidents and director-level executives.

In a statement sent via e-mail, Sun said that it "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."

Sun announced in November that it planned to lay off 15% to 18% of its workforce, or up to 6,000 employees, in an effort to reduce costs by $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 at Wedge Partners.

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.

The latest cuts would have been planned before any acquisition talks with IBM got under way, said Dan Olds, principal analyst at Gabriel Consulting Group Inc. Olds said he also has heard that sales personnel are among those being let go this week.

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 wouldn't be a surprise.

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

Sun hoped the move would invigorate its channel partners, which would no longer have to worry about competing with Sun for business, Wagner said. He added that Sun was doing about two-thirds of its business through the channel as of last summer.

A move to rely even more heavily on indirect sales 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."

The company'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]."

Sun's third quarter ends Tuesday, and the company plans to report its financial results on April 28.

Copyright © 2009 IDG Communications, Inc.

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