More layoffs are expected at Sun Microsystems Inc. as a result of Oracle Corp.'s planned $7.4 billion acquisition, with one Wall Street analyst predicting today that as many as 10,000 people could lose their jobs at the Silicon Valley icon.
Oracle expects that Sun's operations will contribute $1.5 billion in operating profits during the software vendor's next fiscal year and $2 billion the following year. That would make the Sun deal "more profitable in per-share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined," Oracle President Safra Catz said as part of the buyout announcement, referring to the three other large acquisitions made by Oracle in recent years.
Much of the added profits will come via layoffs, according to Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. who follows the technology industry. Prior to today's announcement, he had been forecasting $800 million in operating profits during Sun's 2010 fiscal year, which is scheduled to start in July.
"In order to deliver $1.5B in operating profit, [Oracle] would need to boost profits by $700 million, assuming no material revenue erosion, which suggests incremental head count reductions of 5,500 to 10,000 [workers] depending on timing," Sacconaghi wrote in a research note this morning.
Oracle, which expects to complete the acquisition during the summer, declined to comment about any possible layoffs. Catz, one of Oracle's two presidents, said during a conference call about the deal that the software vendor thinks it can run Sun "at substantially higher margins," but she didn't detail how that will be achieved.
Sun, which has struggled for most of this decade following the dot-com implosion, is already in the process of cutting as many as 6,000 employees — between 15% and 18% of its workforce — under a layoff plan announced last fall. The company recently laid off 1,500 workers as part of that plan.
Consulting firm Technology Business Research Inc. agreed with Sacconaghi that more layoffs are coming if the deal with Oracle goes through. TBR predicted that sales and marketing staffers will be hit hardest. "Oracle will rapidly rationalize Sun's cost base," the firm said in a report. "This means general layoffs and a reshaping of cost centers such as services and support."
Jobs may also be shuffled about from country to country as Oracle reshapes Sun's support and services group to match its global model, TBR said.
The planned acquisition was announced just two weeks after talks between Sun and IBM broke down. IBM reportedly walked away from the negotiating table after the two companies were unable to come to terms on a purchase price, temporarily leaving Sun's future up in the air. That appears to be settled now, but the same can't be said for the futures of many Sun employees.