After unprofitable quarter, Sun to cut jobs
Update 4:02 p.m. PT: I corrected the revenue Sun reported for the quarter. It was $3.266 billion. Update 3:11 p.m. PT: I added more detail on Sun's employee total and after-hours trading.
IBM, Intel, and Google have been immune to the economic slowdown, but Sun Microsystems wasn't.
The server and software company on Thursday announced grim results for its fiscal third quarter, which ended March 30, that showed declining revenue and a swing to a net loss.
Sun Chief Financial Officer Mike Lehman also said the company will cut 1,500 to 2,500 jobs. The company had 34,400 employees at the end of the quarter.
"The U.S. economy presented Sun with significant challenges in the third quarter, masking our progress in developing nations and economies across the world," said Chief Executive Jonathan Schwartz in a statement.
Sun reported a net loss of $34 million, or 4 cents per share, a decline from net income of $67 million in the year-earlier quarter; the figure includes charges of about 4 cents per share from the acquisition of open-source database company MySQL. Revenue decreased $17 million to $3.266 billion, a notch below the $3.4 billion expected by analysts surveyed by Thomson Financial.
In after-hours trading, Sun's stock dropped $2.48, or 15 percent, to $13.85.
In addition, Lehman stepped back from a financial goal it set in 2007 after declaring Sun had "turned the corner." The company then had aimed for operating margin, a measure of profitability, of 10 percent for fiscal 2009, but Lehman said on Thursday that Sun now is aiming for "at least 7 percent." Lehman blamed the economy, but the figure also was reduced because of MySQL operational costs.
"It's fair to say we're disappointed we're not able to go after the operating margin targets we set two years ago," Lehman said. "It would be damaging to the long-term health of the company to hit an arbitrary number."
Stephen Shankland writes about a wide range of technology and products, but has a particular focus on browsers and digital photography. He joined CNET News in 1998 and since then also has covered Google, Yahoo, servers, supercomputing, Linux and open-source software, and science. E-mail Stephen, or follow him on Twitter at http://www.twitter.com/stshank. 
Does purchasing MySQL make sense? Not really.
One has to question how they are planning on generating revenue on things...
workloads moving to their new Power7 chips and DB2. No one
really uses MySQL, anyways, it's just a toy. Real businesses run IBM
hardware.
What if, by some magic or potion, Sun's strategy actually HAD paid off and the shares soared? Well, in that case a great deal of the upside benefit would've gone to... Kohlberg Kravis Roberts & Co. Why? Because Jonathan Schwartz got starstruck by a bunch of shiny-shoed bankers and accepted private equity money he openly admits Sun didn't need. This in exchange for the granting of special warrents which are otherwise unavailable to ordinary shareholders. Sun is the LEAST shareholder friendly company I know of and I make it my business to read the annual reports of literally hundreds of companies. Sun is the worst. Not because of any particular policy; there're other poorly managed companies with similar financial encumberances. It's because their unapologetic trackrecord of failure is unparalled.
Regardless of Sun's technical prowess their abject failure as a business allows their competitors to characterize them and it allows the press to discount them. It's the worst form of advertisement and it's utterly pervasive. Try to find a discussion of Sun anywhere on the internet that's not colored by the contention that their lack of business success hangs a question mark over their longevity and credibility. You can't. The stink of failure is on them.
The shame of it all is they've got the potential to be successful. They've got cash and things aren't bad in terms of cash flow. However, they can't even run an investor meeting correctly. With the current management I just don't see them being able to convert the positives into shareholder value. Jonathan Schwartz is in over his head. He doesn't speak like a results oriented businessman because he's not one.
The first reaction of many of these companies is to start making cuts, to satisfy the stockholders, regardless of what it does to the business. Because after all the BOD's (Board of Directors) of most of these companies, do not depend upon or care about the business itself, or the customers, or the employees, they care about how much money they can rake into their stock value, before the company goes under. Most of them are intentionally not employees for this reason.
There really is no such thing as a true investor these days with publically traded companies, they just want and wait for the stock to go up so they can sell it for profit, thats not investing, thats a day trader parasite.
I see it happen in every industry, if you don't do what Wall-Street expects or wants, they start to kill off your ability to do it in the future to save their own pockets.
Granted that going into unprofitability, may mean this is the right, or at least necessary descision for Sun, but this happens all the time in completely profitable companies, that don't meet Wall-Street's expectations for profit and growth.
For Wall-Street its not good enough that you make a steady reliable profit, year after year, if you don't grow that profit, at a rate that makes them lots of money, they can, and will kill your business to save themselves, because they do not want to have to actually work for a living.
Productive work is the only thing that creates real value, something they seem to know little about, when all they do is try to build imaginary confidence in shuffling numbers around.
But a business' first priority and responsibility should be to the business itself, not Wall-Street. If there is no business, what will Wall-Street be able to suckle on?
- by benjaminstraight July 13, 2008 2:35 PM PDT
- benjamin straight writes: Tough job cuts.
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