Sun warns of revenue drop, announces layoffs

Lower revenue and growing financial uncertainty since the Sept. 11 terrorist attacks on the U.S. led Sun Microsystems Inc. to announce an earnings warning today and to detail plans to lay off about 3,900 workers as it moves to ride out the continuing economic downturn.

In a webcast with analysts, Sun officials said preliminary numbers for the first quarter of fiscal 2002, ended Sept. 30, show revenue will be between $2.7 billion and $2.9 billion, down from $4 billion in the fourth quarter of fiscal 2001. That compares with $5.02 billion in the fourth quarter of fiscal 2000.

The operating loss per diluted share for the first quarter is expected to be between 5 and 7 cents, Sun said.

Sun will lay off about 9% of its global workforce, or some 3,900 workers, by the end of the second quarter to cut expenses. The company will also consolidate excess facilities, taking a $500 million charge in the second quarter for the layoffs and facilities closings. The cuts will save about $125 million to $150 million per quarter by the fourth quarter.

Sun Chairman and CEO Scott McNealy said Sun is "resizing the company, not re-aiming it." Because many of Sun's key customers are airlines, telecommunications companies and other businesses that have been drastically affected by the economy and the recent terrorist attacks, Sun is seeing related business drop-offs, he said.

Michael Lehman, Sun's chief financial officer, said business "virtually ground to a halt" in the two weeks after the Sept. 11 attacks. He said there was an "unbelievable dividing line" in sales before the attacks and after them.

The company remains strong, though, with almost $6 billion in the bank, Lehman said. "We are quite capable of managing through these difficult times."

The business is still expecting profitability by the fourth quarter of 2002, ending next June, he said.

Sun has about 43,200 workers around the globe.

In late August, Sun issued a midquarter earnings warning because of weak sales in Europe and Japan, saying it probably wouldn't reach a $3.7 billion revenue target needed to break even in the first quarter (see story).

In July, Sun announced a round of layoffs, with about 300 workers losing their jobs by the end of the year (see story). Another 572 workers were to be redeployed.

Sun shares fell 37 cents this morning to $8.92 per share after the earnings warning. Analysts polled earlier by Boston-based First Call/Thomson Financial had expected a loss of 4 cents per share on revenue of about $3.3 billion.

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