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News > Technology
Sun warns, slashes jobs
October 5, 2001: 12:10 p.m. ET

Server maker's 1Q losses grew, will continue through 3Q; to cut 9% of staff
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NEW YORK (CNNfn) - Sun Microsystems Inc. warned Friday that it lost more money than expected in the latest quarter due to a near halt in sales for two weeks following the Sept. 11 terrorist attack, and said it will cut 9 percent of its work force, or almost 3,900 jobs.

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The warning is the latest from the high-tech sector, where many companies struggling with a big slowdown in spending on new technology are now wrestling with the added uncertainty created by last month's attack.

The largest maker of Unix servers, which power Web sites and many corporate networks, warned it will lose 5 to 7 cents a share in its fiscal first quarter, ended Sept. 30. Wall Street analysts surveyed by First Call had expected a loss of 4 cents a share, down from earnings of 15 cents a year earlier.

The company also warned it will not return to profitability until its fourth quarter. First Call had forecast EPS of 1 cent in the second quarter and 4 cents in the third quarter before Friday's warning. The company said it could not give any more specific guidance on revenue or profits going forward because of the uncertainty on technology purchase plans of its customers.

First-quarter revenue fell to about $2.9 billion, Chief Financial Officer Michael Lehman told analysts during a Friday morning conference call. That's below First Call forecasts of $3.3 billion and well below the $5.0 billion posted a year earlier.

Shares of Sun (SUNW: down $0.39 to $8.90, Research, Estimates) sank about 4 percent in early trading.

Uncertain outlook for rebound

Company executives said the disruption in purchasing caused by the attack could have cost the company as much as $300 million in sales because half its orders usually are booked and shipped in the final month of every quarter.

There were no sales calls for the week immediately following the attack, Sun President Ed Zander said. When business did start to recover, he said, many customers were reluctant to commit to expensive information technology purchases until they could get a better idea of what their own situation would be.

"What I saw in some of consumer companies was not good," Zander said, describing some of the customer visits he has made. "All were nervous about business, trying to figure out what would happen."

Zander said many sectors where Sun has strong customer sales, including financial services, telecommunications and airlines, were particularly hard hit by the attack.

Some facilities to close

The Palo Alto, Calif.-based company said it will be forced to close some facilities and cut staff to adjust for the lower business levels. It will take a $500 million charge in the second quarter related to cuts, most for severance but also to cover termination of leases.

The executives said that research and development staff will largely be spared the cuts, and that it is not going to move away from any of its existing products or services with these cuts.

"What we're doing is resizing the company, not re-aiming it," CEO Scott McNealy said. "We feel very, very good about what we're doing.

"You just don't cut engineering teams and rebuild them overnight," McNealy added later in the call with analysts. "We're very much protecting the R&D investment."

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Lehman the job cuts were meant to save as much as $150 million a quarter by the fourth quarter, ending in June, when the company believes it again will be profitable.

The executives all said they had no indication that Sun is losing any market share. Lehman said changes in pricing were not a factor in missing the first quarter's revenue targets, but that pricing will be an issue for the company to contend with going forward.

He said despite the losses the company had a positive cash flow in the first quarter before share repurchases. Cash flow, which represents net income or losses plus depreciation and other non-cash charges, should be about breakeven for the next two to three quarters unless Sun decides to significantly increase share repurchases, Lehman said.

For the latest on earnings warnings, click here

The warning comes after Advanced Micro Devices, Gateway and other big-name tech companies also cautioned about results, though Dell Computer Thursday reaffirmed its guidance for the latest quarter. graphic

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