The Ax-Man Finally Arrives at Sun.

Posted by: Peter Burrows on November 14

It’s a hard thing to watch Sun. On the day the company takes another whack at giving Wall Street the massive layoffs its been demanding, the immediate reaction seems to be: it’s not enough. Bernstein Research analyst Toni Sacconaghi, for example, thinks Sun needed to cut 20% of the workforce, not the 15-18% (that’s 5,000 to 6,000 people) the company announced it would lay off by 2010. Trouble is, there are also signs that Sun is losing some of its best people, such as co-founder Andreas Bechtolsheim, who recently left for his latest start-up. That would be the worst of both worlds: a pared down company, without the innovation manpower to make a better future. Maybe the only good news in all of this is that there are not many jobs for other top Sun employees to jump to, even if they wanted to.

No doubt, CEO Jonathan Schwartz had no choice but to make these cuts. A source tells me that even former CEO Scott McNealy—who for years stubbornly refused to cut back on the R&D and other personnel he was convinced were necessary to maintain long-term innovation—was on board. “He’s a shareholder, too. He knows the company can’t stand pat.” Here is a video mailgram from Schwartz explaining the reasons for the cuts, and a reorganization that accompanies it.

Rather, Sun needs to reset its cost structure to the point that it can operate profitably again, in a downturn that may be with us for years. That’s especially true given the dour outlook for the future of the financial services sector that has been so very good to Sun over the years. One source says the company is concerned that Wall Street won’t be a good growth market for “a very long time.” Even Sun’s largest shareholder, Southeastern Asset Management—which just a few weeks ago was waxing optimistic in our story about Sun’s gloomy outlook—has reportedly been demanding big changes from management. From my reporting, it sounds like Sun’s management team is less focused on what parts of the company it can sell or close down, and more focused on finding new growth markets. “If we have to depend on sales to P&G, GE and Citicorp—that’s not going to do it.”