Consistency of profits to decide job cuts in Sun

By Caroline Humer

FLORIDA: Sun Microsystems Inc. Chief Executive Officer Scott McNealy said that he would consider more job cuts if the network computer maker did not return to consistent profitability. McNealy, who didn't imply that cuts are planned, said the company would consider making changes to its spending structure.

"We said a year ago that we thought we'd made enough cuts to get us to profitability. In the June quarter we did that. But I've also said that if going forward, we don't feel like we can sustain consistent profitability, we'd take more actions," McNealy said.

"So it really depends on how we did last quarter, how we think we'll do this quarter and how we'll do the rest of the year," McNealy said, when asked under what conditions he'd consider further cuts.

Sun recently restated earnings for its fiscal fourth quarter, saying costs were lower than expected. It made a net profit of $61 million, or 2 cents per diluted share, in the quarter ended June 30, rather than the profit of $20 million, or 1 cent per diluted share, it had announced on July 18.

McNealy said he wouldn't answer questions about the economic situation or about the company's first quarter ended Sept. 30, but said he believes that clients had a lot of unfunded technology projects.

The company in August lowered its forecast for revenues in its fiscal first quarter, saying corporate spending on technology may actually be weakening.

"When I talk to (information technology) execs, there's no question that they have a list as long as your arm of unfunded, good-return IT projects," he said. Today's "cash-is-king mentality, I don't want to go bankrupt, I have no idea where the economy is going" means those projects aren't happening, he said. Companies may have good reasons, he said, but no IT spending has its costs.

"If they don't all spend, then we have a productivity drop and then it can be a negative spiral too, so it's a pretty challenging economic environment," he said. McNealy defended the company's strategy, saying it was the best plan for Sun, whose shares have fallen about 80 percent so far this year and fell 9 cents to $2.47 on Nasdaq on Tuesday.

"We believe we're making the right long-term and short-run trade-offs to deliver long-term shareholder value. We're protecting the (research and development) budget and the product pipeline. We are generating cash and we are preserving the cash we have in the bank," McNealy said.

At the same time, Sun is gaining market share, keeping control of costs, and managing the company responsibly in terms of transparency and employee payments, he said. "I think we're doing a lot for our shareholders long-term," he said, adding, "We don't control the economy."

© Reuters