Sun Microsystems Inc may fire more than 20 percent of its workers as demand slumps for server computers and related gear, Sanford C. Bernstein & Co analyst Toni Sacconaghi said.
Every 1 percent reduction boosts the company's earnings per share by a penny a year, Sacconaghi wrote in a note to clients.
With analysts on average expecting a US$0.12 profit for the next fiscal year, any job cuts would have a big impact, he said. A 20 percent cut would affect about 8,600 of Sun's more than 43,000 employees.
Sun, the fastest-growing server maker last year, has stumbled this year as clients slash spending to save money while economic growth slows. Analysts say conditions may get worse in coming months, after terrorist attacks hurt consumer and corporate demand. Sixteen of the 22 analysts who track Sun reduced their profit targets for this fiscal year in the past month, according to Thomson Financial/First Call.
"Layoffs now appear inevitable," Sacconaghi wrote. His fiscal 2002 earnings estimate of US$0.10 a share includes a 10 percent to 15 percent workforce reduction, and he said the cuts may reach 23 percent.
Company spokeswoman Elizabeth McNichols declined to comment on the report.
Sun rushed to add workers last year, when demand surged as its servers became popular with Internet-related customers that needed to beef up their operations to handle online orders. Even as sales sagged this year and rivals cut their payrolls, Sun didn't announce firings.
The Palo Alto, California-based company has seemed more open to the possibility in recent weeks. Sun said in August that it would end the September quarter with 500 fewer employees and earlier it asked workers to take vacation days to pare costs.
Sun shares rose US$0.29 to US$9.29 on Thursday. They've lost two-thirds of their value so far this year.
Sacconaghi studied 13 large companies whose sales eroded this year, including Cisco Systems Inc, Compaq Computer Corp and Motorola Inc. He found they'd started reductions averaging 24 percent of their staffs.
Cisco has shed more than 6,000 full-time employees, Compaq will chop 8,500 jobs and Dell Computer Corp plans to eliminate as many as 5,700.
Because spending from communications-related clients and other corporations is likely to continue to deteriorate, Sun will post a loss this fiscal year unless it cuts workers, Sacconaghi said. The analyst, who rates Sun shares "market perform," couldn't be reached to elaborate.
"It's not unexpected that they would have to do some layoffs," said Bill Rutherford, whose Rutherford Investment Management owns Sun shares. "In light of the terrorist attacks, they've probably seen further softening of their business."
Sun hasn't given a firm sales target for the September quarter. In July, the company said sales would be more than US$3.7 billion, the point at which Sun would break even before acquisition costs. The following month, officials said the company wasn't likely to meet that forecast.
"It would take a very large month of September for us to hit the break-even point," Chief Financial Officer Mike Lehman said Aug. 29. "I'm not counting on it. I just don't think it's realistic at this point."
Sales in Europe and Japan are below expectations, with US revenue coming in close to forecasts, Lehman said at the time.
Compaq and other computer makers have said this month that sales dropped further after terrorist attacks Sept. 11.
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