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Sun touts new products, cuts 1,000 jobs

Sun Microsystems ended its user conference by announcing that it will lay off about 1,000 employees. The sour news comes during a week of positives that included announcements of new products and healthy financial news.

SAN FRANCISCO -- Sun Microsystems Inc. CEO Scott McNealy ended his company's SunNetwork user conference Thursday on a down note, confirming that Sun will cut about 1,000 jobs. The announcement contrasted with McNealy's demeanor throughout the week, when he gushed about new products, pricing structures and Sun's performance on Wall Street.

McNealy said that the cuts would rebalance the company's work force. Sun is hiring people in top-priority areas, he noted. An official company statement said that the work force reduction is a reallocation of "resources to meet the highest priorities of the business.''

McNealy's keynote earlier in the week started the conference on a positive note. He said that Sun is robust financially, with $5.7 billion in ready cash. Also, he touted several of Sun's market wins, such as beating out IBM Corp. and Hewlett-Packard Co. in the high-end server market. He mentioned Gartner Inc.'s finding that Sun led the 2003 Unix server market in both unit and vendor quarter-to-quarter revenue growth and that the company has kept the title of worldwide leader in both categories.

Looking for subtext, one might find some foreshadowing of the impending belt-tightening measure in the text of McNealy's keynote. He urged organizations to reduce the costs and complexity of their IT systems. He lambasted the computer systems industry and his own company for overcharging customers and making technology too complicated. While announcing his company's new, simplified and scaled-down pricing model, he predicted that enterprise computing system prices would decline even more in the next few years.

Sun's new direction of offering lower-cost, integrated software packages and low-end servers will play well in this new, cost-conscious marketplace, he said.

Sun's previous high-end computing strategy hasn't flourished since the dot-com boom fizzled. Sun's strength in the Unix marketplace became a mixed blessing, as the Unix market shrank 11% to $17 billion in 2002 (according to Gartner). Sun's quarterly revenue shrank from about $5 billion in 2001 to about $3 billion in 2003. Sun began layoffs in late 2001, cutting almost 4,000 jobs and, in 2002, about 5,000 more.

Responding to market pressure and the recessionary economy, Sun began supporting Linux, developed low-end servers, returned to the desktop market and is increasing services offerings. In its SunNetwork server announcements, the company put emphasis on pricing, noting with each system its price advantage over competitors Dell Inc., HP or IBM.

The closing day of SunNetwork did end on a positive note, however, as Sun's Nasdaq stock price rose 15 cents to $4.17 at closing.


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