Sun shakes up jobs, money and partners

Schwartz named new president and COO

Saying that it is undertaking "one of the great repositionings of the post Internet bubble", Sun Microsystems not only announced Friday that it reached a settlement on antitrust charges and is collaborating with long-time foe Microsoft, but also named a new company president and said further restructuring will see the reduction of some 3,300 jobs.

"There's never a dull moment around here," Sun Chairman and Chief Executive Officer Scott McNealy said during a conference call, in which he concentrated on the company's preliminary third-quarter 2004 financial results.

The real news of the day, however, was Sun's announcement that it had settled its dispute with Microsoft, with the companies dropping all pending litigation and entering into a 10-year cooperation agreement to make their products work better together.

"Our customers have been telling us that they need peace. They have Microsoft products and they have Sun products and they need them to work together. This puts peace on the table in a big time and positive way," McNealy said.

The news left some analysts and industry watchers stunned.

"If this news would have come out yesterday, I would have thought it was an April Fool's joke," said RedMonk LLC analyst James Governor. However, he said that the move showed a sense of maturity on Sun's part, that it was willing to lay down its sword and enter into a partnership that will in the end benefit customers.

"Customers don't want companies that are so immature that they won't speak to each other, let alone build products that don't work together," he said.

Although McNealy declined to comment further on the agreement until the companies hold a joint press conference later today, McNealy did say that it marked "a huge day for customers."

As part of the company's restructuring, Sun also announced the promotion of software head Jonathan Schwartz to president and chief operating officer. Schwartz joined Sun in 1996 and has since led the development and delivery of the Solaris 10 operating system and Sun's Java Systems strategy, the company said.

A successor for his previous position as executive vice president of software will be named shortly, the company said. The appointment of Schwartz comes as Sun has been putting an emphasis on its software business.

Given the company's software push, Schwartz's appointment is no surprise, according to analyst Stephen O'Grady, also from RedMonk.

"Since taking over the reigns of the software side of the house (Schwartz) has done a lot of good things -- he has, in effect, turned the software shop around and obviously has shown a willingness to make decisions, certainly controversial decisions," O'Grady said, such as a move to subscription pricing and a change in the way Sun promotes Java.

But while McNealy trumpeted the changes brought by the new leadership and the company's big, new friend -- Microsoft -- Sun still expects to report a hefty loss for its third-quarter.

Sun predicted a net loss in the range of US$750 million and $810 million on revenue of $2.65 billion for the quarter ended March 28. The loss includes a $350 million charge for an increase of valuation allowance for the deferred tax assets and a $200 million charge for workforce and real estate restructuring.

In that vein, the company said that it was trimming its workforce by approximately 3,300 jobs worldwide, across all departments.

McNealy called the layoffs part of "the last piece of restructuring" after the burst of the Internet bubble.

"I like where we are, I love our cash position and our product line is the best in decade," McNealy said, shirking off questions from analysts about the company's third-quarter estimates.

Governor noted that although the company has cash reserves, it can't take $750 million losses very often, noting that it still has financial problems.

However, McNealy rung a positive note. "We are very close to pulling off one of the great repositionings of the post Internet bubble," he said.

Stacy Cowley in New York contributed to this report.

Copyright © 2004 IDG Communications, Inc.