Setting Sun

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Casting More Doubt

Sun was one of the hardest hit computer companies after the crash of Internet and telecom companies earlier this decade, racking up billions of dollars in losses. The company was also slow to react to an industry transition to low-cost computers that run on chips from Intel (INTC) and Advanced Micro Devices (AMD), rather than more expensive servers that run on Sun's own Sparc processors. Total revenue from computers running the Unix operating system, including those using Sparc and Sun's newer Niagara chips, fell 11% in the quarter.

The latest results contrast with positive first-quarter results reported by other tech companies, including IBM (IBM) and Google (GOOG) (BusinessWeek.com, 4/17/08), and cast doubt on whether Sun can regain a central role in the computer industry. "When we look at turnarounds, we hold companies to a specific standard: we expect them to meet milestones set for investors and get concerned when they miss against what we assume are conservative goals," Bear Stearns (BSC) analyst Andrew Neff wrote in a May 2 research note. Neff, who lowered his rating on Sun to peer perform, said Sun has not successfully negotiated the slowdown, unlike IBM, EMC (EMC), and Hewlett-Packard (HPQ).

Cutting Back

In light of the weakness, Schwartz announced a layoff to cut expenses, the third of his regime. Sun eliminated more than 4,000 jobs in May, 2006, shortly after Schwartz became CEO. Another 1,600 jobs were cut in September, 2007. The new layoffs would eliminate 1,500 to 2,500 jobs, resulting in a charge of $130 million to $220 million. The job cuts should lower Sun's annual operating expenses by $100 million to $150 million, with the majority of the savings reflected in the quarter that ends in December, a spokeswoman said. She declined to say what areas of the company the cuts would come from.

Sun's JavaOne announcement enticed recipients to "come hear and see what Java technology means to Neil Young." The company needs all the star power it can get right now; for their part, investors are probably identifying too closely with the words of Young's seminal song, Helpless.

Ricadela is a writer for BusinessWeek.com in Silicon Valley. Burrows is a senior writer for BusinessWeek, based in Silicon Valley .