April 25, 2001 12:30 PM PDT

Sun, HP mandate vacation time to cut costs

In parallel efforts to cut costs, Sun Microsystems and Hewlett-Packard are requiring employees to take vacation time, the companies confirmed today.

HP has asked employees to take six days off between May 1 and Oct. 31, spokeswoman Suzette Stephens said Wednesday. And Sun will require its employees to take vacation the first week of July as the company shuts down all but some core operations.

"All U.S. Sun offices will be shut down during the first week of July," the company said in a memo seen by CNET News.com. "Since July 4th is a company holiday, you should plan on taking vacation for July 2, 3, 5, and 6, so you will be paid for the entire week."

The measures are drastic, but not as drastic as the alternative: layoffs.

Cost-cutting has been a dominant theme throughout the high technology industry since late last year. Cisco Systems, Gateway, Dell, Motorola, SGI, Compaq Computer, Intel, Solectron and a host of other established technology companies have announced they will reduce their work forces through layoffs, attrition, more stringent performance review systems or other means to save expenses.

Other cost-cutting measures, such as cutting back on travel, have been implemented by Microsoft and other companies that have not discussed employee reductions. Hiring has been curtailed substantially at Sun and other companies.

For the most part, declining sales have been blamed for the cutbacks.

The cuts follow incredible growth spurts at many companies. The number of employees working at Dell more than doubled from the end of 1998 until the end of 2000. The majority of Sun's employees have been with the company two years or less, a company representative said earlier this month.

Mandatory vacations provide a way to cut expenses without losing key employees or damaging morale as deeply.

Sun profited mightily from the go-go years of the Internet, when start-ups were buying large servers and established companies such as automakers and insurance companies were trying to splice Internet operations into their businesses. Now, though, countless Internet ventures have collapsed and corporations are delaying and canceling orders.

A Sun spokeswoman confirmed that the company will be shutting down for a week in July.

The shutdown will affect the 38,000 employees in Sun's U.S. facilities, the company said. Facilities outside the country also will be affected, but the extent and details haven't been determined yet.

The move at Sun, announced to employees Monday, is part of a series of cost-control measures under way at the Palo Alto, Calif., server giant. Like its main competitors, the company has been hit since December by a slowing in corporate spending on expensive servers as well as on cheaper PCs.

Sun last week surprised analysts with the extent of its revenue drop, meeting drastically lowered profit expectations only by dint of major cost controls. One such measure saved the company $240 million by not paying salaries and bonuses tied to the company's performance.

Sun is implementing other cost controls, executives said last week. "We've modified our policies on travel, capital acquisition, facilities expansion. We've stopped nearly all forms of discretionary spending," Chief Financial Officer Mike Lehman said in a conference call last week.

The mandatory vacation week occurs at the beginning of Sun's next fiscal year.

HP pioneered the use of vacations as a cost-cutting measure and used the strategy in the 1960s, 1970s and 1980s, Stephens said.

"It's a tactic that goes back to (co-founders) Bill (Hewlett and Dave (Packard). Everybody chips in and takes some measures, and that avoids more serious measures.

"It does have an impact on the bottom line," Stephens said, though she couldn't detail exactly how much expenses were saved.

Sun employees may take the time off without pay instead of as vacation if they want, the memo said. HP asks people to use their vacation time if they have it. If they don't have enough to cover the time, they may stay at work, Stephens said.

HP has announced two rounds of layoffs recently--one 1,700-person layoff announced at the end of January and another 3,000-person layoff of managers last week.

However, HP employees had 60 days to find new jobs in the company, and many of them did, Stephens said. More than 20 percent of the earlier 1,700 didn't lose jobs, and many of the 3,000 managers losing their jobs will be able to continue in non-managerial positions, she said.

HP is working to change the ratio of regular employees to managers from ther current 6.7-to-1 ratio closer to the industry average of 8.3 to 1, Stephens said.

During Sun's week off, the company will maintain a skeleton crew in accounting, customer support and "other essential services," the company said.

Sun has 43,000 employees, including 1,180 new employees hired last quarter, Sun said last week. The company is hiring college students--typically less experienced and less expensive employees.

Sun hasn't reneged on offers extended to college students and expects to hire 40 this quarter, the spokeswoman said.

In December, HP asked employees to take five days of vacation by Jan. 31. "We are...asking all of our employees to assist in these cost-control efforts," the company said in a memo, adding that employees could borrow from future vacation time to cover the time off.

HP also delayed raises and required a 20 percent cut in the number of temporary and contract workers.

CNET News.com's Michael Kanellos contributed to this story.

 

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