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Sun Microsystems, a leading supplier of server computers and enterprise solutions, announced on Wednesday its plan to reduce its workforce by up to 5000 employees. Technology analysts believe that layoffs within Sun are set to continue and the company may decrease the number of specialists dedicated to Sparc systems and processors development.

 “The main area TBR expects the company to trim headcount is in Sun’s Scalable Systems Group that develops the company’s high-end Sparc-based systems. To compensate for the reduction in operating resources dedicated to the Sparc platform, Sun will more heavily leverage the resources of its Sparc development partner Fujitsu,” said Martin Kariithi, an analyst with Technology Business Research (TBR).

In the recent years Sun already scrapped several major Sparc-related projects, but still continued to develop future Sparc processors. Given that the company’s high-end server market share has been going down for years now, the reduction of efforts put into the development of Sparc products may seem logical. Additionally, there are more layoffs expected within different divisions of Sun.

“However, the 5000 headcount is still below the 20% employee headcount reduction TBR estimates Sun will require to return to the revenue-per-employee efficiency level the company enjoyed in 2000,” Mr. Kariithi said.

The analyst reminds that Sun’s Q1 2006 revenue per employee stands at $322 593, representing a 28.5% decline from $451 303 in Q4 2000.

“I believe Sun would also be well served by cutting back on human resources, finance and accounting, marketing, corporate communications and other back-office services – all functions that can be easily outsourced,” said the analyst from TBR.

On Wednesday the company said it was reducing the approximately 37500 worldwide employee headcount by 4000 to 5000 people over the next six months and is selling its Newark campus and exiting leased facilities in Sunnyvale, California. The company will continue operations of its two major Bay Area campuses, Menlo Park and Santa Clara, California. The firm did not note, which positions are going to face layoffs. 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”.

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