The Ax-Man Finally Arrives at Sun.

Posted by: Peter Burrows on November 14, 2008

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.”

Reader Comments

Software Innovator

November 15, 2008 10:34 PM

Sun needs to diversify its business toward new markets, not just big business like financial services.

They need a small business systems division. And they could enter the personal computer business, believe it or not. Sun needs to dump some old software tech like X windows and concentrate on bullet-proof end-user friendly systems.

Sun could start with on open-source PC sold to consumers at retail outlets. They must do things like this to grow.

Anonymous

November 17, 2008 2:22 AM

Sun should concentrate on some of their niche software offerings that they have let slip for lack of interest, such as Identity and Access Management...there is a huge market out there to explore and to go head to head with Oracle, IBM, SAP and now Microsoft.
Use the MySQL database acquisition to adopt a strategy like Oracle and deliver the suite in the same way inside the enterprise and beyond into the Cloud.
But first Sun needs to get partnered with some integrators who can both sell and deploy the product.
Good luck.

Ixzdore Agada

November 17, 2008 8:36 AM

The question is really who will buy Sun? There is nothing exciting coming anymore from Sun to save her. Cutting jobs is just not going to do it. If I were in there shoes I will start exploring the possibility of building massive data centres and offering real cloud computing and outsourcing the existing large system installations or look for something else to power.

xyz123

November 17, 2008 6:35 PM

For as many people who "know" what Sun should do, there are 100x opinions... from Sun PCs to the masses, to competing with Oracle in software. Who cares. Large organizations are hard to maneuver in a quickly changing market as IT. Any large innovation investment poses tremendous risk known markets, to say nothing of unknown markets. Sun's "in a garage" (Amber, 7000) R&D can potentially reproduced, but then with its own set of significant risks. Who cares, Sun will be dead in a few years.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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