According to the Wall Street Journal, Sun Microsystems is planning a 15% cut in its workforce. Perhaps one of the major problems for Sun is that its sales force and margins are based on selling proprietary hardware. And like most products their customers pushed for commoditization over time. Linux was a commodity priced solution that pushed Sun over the edge. Economic models that go back to to Adam Smith’s have made sense for hundreds of years because they keep passing the test of time. If Sun can figure out how to make money with its Thumper products selling them as a commodity solution they may re emerge in a stronger position.
As I have written previously, there is a customer niche for the product.
The Silicon Valley computer maker said the moves, which include organizational changes aimed at bolstering its software business, will reduce costs by approximately $700 million to $800 million annually. It expects to incur total charges in the range of $500 million to $600 million over the next 12 months from the restructuring, of which it expects to incur approximately $375 million to $450 million within its current fiscal year 2009.
Sun has been struggling to reverse sagging sales, a depressed stock price and other problems. Sun reported a $1.68 billion loss in its fiscal first quarter ended in September, and has faced pressure from Wall Street to make substantial cost cuts. The company’s revenue, which dropped 7%, was triggered partly by a drop in sales of its high-end server systems, which use a proprietary chip technology called Sparc.
Sun is battling to find a consistent formula for growth since the Internet boom, when it supplied computers to power Web sites. But most of that business shifted to lower-priced systems that use x86 chips, designed by Intel Corp. and Advanced Micro Devices Inc. Sun now sells those machines, too, but its growth with those products has not been able to make up for slowing growth of its Sparc line.
More recently, Sun was among the first technology companies to feel the effects of the slump on Wall Street. The company has long relied heavily on sales to the financial services industry.