Sun Plots Reorg, Releases Chips

Sun announces more job cuts and restructuring as Schwartz attempts to steady his ship

August 8, 2007

4 Min Read
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Sun's in upheaval, planning yet more job cuts and restructuring, as well as a foray into the merchant silicon market. (See Sun Enters Silicon Market, Sun Reshuffles Storage... Again, and Storage Slows Down Sun.)

In an SEC filing this week, Sun revealed that its board has approved a "Restructuring Plan" that will involve workforce reductions "in various geographies." Although Sun has not revealed the scale of these job cuts, the SEC document says the firm will incur costs of between $100 and $150 million "over the next several quarters" as a result of its restructuring efforts.

Most of the cash impact of Sun's restructuring effort will come from severance costs, the bulk of which will be incurred in the first half of 2008, according to the filing.

The news is no surprise. Sun's recent fourth-quarter results painted a less-than-rosy picture of its server and storage business, with revenues down 10.4 percent year over year. (See Storage Shades Sun's Q4 and Sun Exceeds Profit Target.)

Pund-IT analyst Charles King believes the ongoing restructuring underlines the troublesome nature of Sun's storage business, even two years after its $4.1 billion StorageTek acquisition. (See Sun Closes on StorageTek .) "Storage has always been a problematic spot for Sun, really for several years now," he says, explaining that the vendor started to ramp up its storage hardware efforts at a time when rivals IBM and EMC were focusing on storage services and software. "A commodity business of any sort is a tough place to make a killing."More storage turmoil looks on the cards, according to King. "It seems to me like they are really looking to tear it apart, top to bottom."

Exactly how much longer this restructuring will continue remains to be seen. Last year, for example, new CEO Jonathan Schwartz announced plans to cut the vendor's 37,500-strong workforce by around 5,000, and he unveiled a major real estate consolidation project. (See Schwartz Shakes Up Sun, Sun Issues Growth Plan, and Sun's McNealy Steps Down.)

Last year's job cuts followed a big reorganization of key storage personnel, as Schwartz attempted to get his arms around the vendor's beleaguered storage business. (See Sun Names Storage Boss, Sun Takes Action Amidst Concerns, Advice for Sun, and Sun Names New Execs.)

Sun has also faced a number of well-publicized challenges rationalizing its product lines in the aftermath of its StorageTek acquisition. (See Sun Shuts Door on VSM Open, StorageTek Users Voice Support Fears, Sun Opens Tape Again, and Sun Opens Up on NAS.) At one point, there was even speculation that the vendor was planning to sell off its storage business, something strenuously denied by Sun. (See Sun Storage Chief: We're Not for Sale and Sun, Hitachi Talk Storage.)

Earlier this year, the vendor did sell its underperforming 6920 SAN array to HDS, although recent comments by Schwartz suggest that the vendor's archiving and tape products are performing better. (See Sun to Acquire StorageTek for $4.1B and Ericsson Builds Grameen Backbone.)In a conference call to discuss Sun's fourth quarter results, Schwartz blamed the revenue slippage largely on Sun's poor performance in the OEM arena, something which the vendor is now looking to address through silicon.

In a clear attempt to breathe life into its flagging OEM business, Sun unveiled a merchant silicon version of its UltraSPARC T2 processor today. The chip, which Sun is touting as the world's fastest commodity microprocessor, contains eight cores and eight threads per core.

The move follows IBM's recent introduction of its dual-core Power6 chip and p570 system, which it is pushing as an alternative to Sun's SunFire servers. (See IBM Intros Power6 and IBM Lobs Benchmark at Sun.)

Previously known as 'Niagara 2,' the UltraSPARC T2 is a move into a new space for Sun. (See Sneak Preview: Suns SunFire T2000.) Although the vendor has not revealed how many deals are in place for the processor, Sun is making the chip's design spec available to the open source community in an effort to build momentum behind the technology.

Pund-IT's King warns that there is more to chip technology than just hardware. "Silicon is worthless without ISV support," he says, adding that IBM has done a good job building a community around the Power chip. (See Expands Membership.)Sun says that the UltraSPARC T2 will be available this quarter, priced below $1,000.

In trading this morning, shares of Sun were up 2 cents (0.4%) to $4.98.

— James Rogers, Senior Editor Byte and Switch

  • EMC Corp. (NYSE: EMC)

  • Hitachi Data Systems (HDS)

  • IBM Corp. (NYSE: IBM)

  • Pund-IT Inc.

  • Securities and Exchange Commission (SEC)

  • Sun Microsystems Inc.

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