Sun Microsystems Inc. (NASDAQ:SUNW) today announced that the company's board of directors has approved a growth plan with the goal of accelerating Sun's return to consistent profitability.
The plan provides for increasing investment in core technology and channel resources, while accelerating acquisition synergies and disinvestments in non-core processes and research and development activities.
Over the past month, a team led by Sun's president and chief executive officer, Jonathan Schwartz, and chief financial officer, Michael Lehman, have conducted thorough reviews of the company's global operations. As a result of this ongoing analysis, the company is instituting a number of initiatives to better align expenses with its core business strategy and drive the company's operating income goals of at least 4% of revenues for Q4FY07 and of at least 10% of revenues long-term.
More specifically, the plan addresses several cost cutting initiatives including a 11-13% reduction in force and the consolidation of its real estate portfolio. The company is reducing the approximately 37,500 worldwide employee headcount by 4,000 to 5,000 people over the next six months and is selling its Newark campus and exiting leased facilities in Sunnyvale, Ca. The company will continue operations of its two major Bay Area campuses, Menlo Park and Santa Clara, Ca.
These initiatives are designed to focus and streamline the company and are expected to result in an annual cost savings between $480 million and $590 million, with the full impact expected to take effect by Q4 of Fiscal 2007. The company expects to incur restructuring charges ranging from $340 million to $500 million over the next several quarters in connection with the plan, the majority of which will be incurred in the fiscal quarter ended June 30, 2006.
"Momentum is clearly increasing around Sun's core technology and channel programs, with Java, Solaris, SunFire and StorageTek platforms all gaining share," said Schwartz. "We've worked hard to reinvent the entirety of Sun's product line, from software to systems, storage and services. It's on that rebuilt foundation, that we are reinventing our business model on a far simpler base and focusing our energies on the automation, energy efficiency and network innovation at the heart of our technology leadership."
In addition to these restructuring activities, Sun's board has approved the company's operational goals and priorities for its fiscal 2007 business plan. Key components of that plan include:
- A Q4 Fiscal 2007 operating income goal of at least 4 percent of revenue, excluding any amounts related to restructuring, but including amounts related to stock-based compensation (FAS 123R) and amortization of purchased intangibles
- A longer term operating income goal of at least 10 percent of revenue.
- Expected Fiscal 2007 full year revenue growth in the low to middle single digits
- Expected Fiscal 2007 gross margin of around 43 percent
- Expected Fiscal 2007 operating expenses in the range of $5.6 billion to $6.0 billion, excluding any amounts related to restructuring, but including amounts related to stock-based compensation (FAS 123R) and amortization of purchased intangibles
Since taking over as CEO on April 24, Schwartz has announced a number of important executive moves including the appointment of Richard Green to EVP of Software, John Fowler to EVP of Systems and David Yen to EVP of Storage. Additionally, Sun has announced the expanded roles of Don Grantham to EVP of Global Sales and Services, Greg Papadopoulos to CTO and EVP of Research and Development, Crawford Beveridge to EVP and Chairman, EMEA, APAC and Americas and Bill MacGowan as Chief Human Resources Officer and EVP of People and Places.
"The team that I have aligned, combined with today's announcement, represents Sun's reinvigorated focus and recommitment to driving customer and shareholder value," said Schwartz. "I'm confident that we're on the right path -- revenues and gross margins were up in Q3 year-over-year and our investments in core R&D activities are paying off. We have a solid foundation - a strong balance sheet with approximately $4.4 billion in cash and marketable securities, long-term partnerships with other technology leaders worldwide, and strong relationships with virtually every Fortune 1000 company. I believe that execution of our strategy to provide innovation and choice will pay off in value to customers and that value will be reflected in business performance."