Sun plans job cuts, blames weak Q3 results on U.S. economy

Vendor reports $34M loss, says it will reduce workforce by 7% in wake of MySQL deal

In its first earnings report since completing the $1 billion acquisition of open-source database vendor MySQL AB, Sun Microsystems Inc. yesterday reported third-quarter financial results that show it's still struggling to grow revenue.

Sun also said that it plans to cut as many as 2,500 jobs — or about 7% of its workforce — over the next three months.

Revenue in the third quarter, which ended March 30, totaled $3.27 billion, down slightly from $3.28 billion in the same period last year. Weighed down by costs associated with the MySQL acquisition, Sun reported a net loss of $34 million for this year's third quarter. The company indicated that it would have broken even if not for charges related to the MySQL deal.

Sun officials said that the vendor was doing well in emerging markets such as India and Brazil, but that business conditions weren't so rosy in the U.S. The company's computer systems and storage groups both missed internal revenue projections by about $100 million, with sales particularly flagging at the high end of those two product lines.

During a conference call with reporters and financial analysts, Sun CEO Jonathan Schwartz blamed the economy, not competitors, for the weak third-quarter results. "Our third quarter was a challenging one in which U.S. macro factors . . . overshadowed the progress we made in other parts of the world," Schwartz said. "I'm disappointed." He added that the economic slowdown in the U.S. affected orders from customers in the government, retail and telecommunications industries.

The MySQL acquisition and a separate purchase of desktop virtualization vendor Innotek GmbH added 1,100 new employees to Sun's workforce during the third quarter. But the company now plans to cut between 1,500 and 2,500 jobs before the end of its fiscal year, said Michael Lehman, Sun's chief financial officer. He expects the cutbacks to reduce annual costs by $100 million to $150 million.

Sun shipped about 80,000 servers during the third quarter, up 6% year over year. About 30,000 of the servers came from the company's x64 product line, which are based on Intel Xeon or AMD Opteron processors instead of Sun's own Sparc chips. The x64 shipments were up 26% from the level in last year's third quarter.

Copyright © 2008 IDG Communications, Inc.

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