Update: Sun reorganizes, cuts up to 18% of workforce

Struggling vendor also says that Rich Green, executive vice president of software, is leaving

Sun Microsystems Inc. is laying off 15% to 18% of its employees as part of a restructuring plan aimed at saving $700 million to $800 million a year, and its top software executive is leaving the company, Sun said Friday.

The cutbacks will affect between 5,000 and 6,000 employees. Sun is also reorganizing its software division, a move it said stands as "a recognition of the comprehensive role software plays in the company's growth strategy."

In addition, Sun said that Rich Green, the company's executive vice president of software, has decided to leave the company. Sun said Green "has been an instrumental force in evolving Sun's software strategy and successful business execution across its diverse portfolio."

Sun's software division changes include a new group, application platform software, which includes Sun's MySQL database and infrastructure technology, such as the GlassFish application server.

The cloud computing and developer platforms group will focus on Web-based services as well as Sun's NetBeans development platform. Also, Sun's Solaris, virtualization and system management software teams will be moved into the company's systems group.

All changes are effective immediately, Sun said, adding that the crumbling economy sparked the layoffs and other changes.

"Today, we have taken decisive actions to align Sun's business with global economic realities and accelerate our delivery of key open-source platform innovations," CEO Jonathan Schwartz said in a statement.

At the end of October, Sun blamed the downturn in the financial sector for a $1.68 billion quarterly loss. The collapse of Wall Street over the past two months eliminated several key Sun customers.

Sun has also been struggling overall for some time because of slumping sales of its high-end servers.

Angry Sun shareholders have been pressing company officials to improve corporate performance. Sun's share price has fallen from about $17 at the beginning of this year to roughly $4 at the start of trading Friday.

"The fact that the stock has been diving and diving and diving and is never pulling out of this dive, you start to wonder: How long can you keep diving before you lose all your stockholders?" one shareholder said during the company's recent shareholder meeting. "How long can you be in free fall and still survive?"

Schwartz told the crowd that Sun is trying to reinvent itself by developing new server systems and attracting new customers with its open-source software portfolio. But that strategy has not borne fruit quickly.

To that end, the scale of Sun's layoffs was not out of line, said Stephen O'Grady, an analyst at RedMonk. "Yes, these are pretty deep cuts, but they're dictated by the company's performance over the past few quarters," he said.

Regardless of Sun's finances, assets like MySQL and GlassFish are valuable and "will survive in one incarnation or another," O'Grady added.

But the company's sales execution has not matched the quality of its portfolio, said James Governor, another RedMonk analyst, via e-mail.

Part of the problem is that Sun's success "is still overly wedded to the financial services market, a market that has literally gone off a cliff," Governor said. But the company has recently gained some major deals in the media market, he added.

"I actually thought Sun was more likely to go private than make a round of cuts, but there isn't exactly a lot of paper flying around at the moment to fund such a deal," Governor said.

Neither analyst knew exactly what prompted Green's departure, but Governor said he was "a little surprised."

"[Green] was very much Jonathan Schwartz's hire," he said.

Sun shares stood at $4.05 in early trading, down slightly from its previous close of $4.08. But the Morgan Stanley high-tech index fell about 3.7%.

Marc Ferranti and James Niccolai of the IDG News Service contributed to this report.

Copyright © 2008 IDG Communications, Inc.

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