Schwartz announced earlier this month that Sun will be cutting up to 5,000 of its 37,500 employees worldwide over the next six months, as well as selling its campus in Newark, Calif., and leased facilities in Sunnyvale, Calif. The moves are expected to generate from $480 million to $590 million in cost savings over the next year, good news for a company that has been losing money to the tune of hundreds of millions in each of the last several quarters.
According to the memo, the separate groups for disk, tape and software that had existed within Sun's Data Management Group will be consolidated into one, and what had been a central marketing and partner management group will be woven in as well, creating "one single unit headed by one vice president of marketing." That new vice president will be Nigel Dessau, formerly the head of the tape business unit, who came in with the StorageTek acquisition as its chief marketing officer.
It is the latest in a string of upheavals within the company in the aftermath of last year's $1.4 billion deal for StorageTek. The vendor has fallen behind the other big players, including EMC Corp., IBM, Hewlett-Packard Co. (HP) and Network Appliance Inc., and so far there have been fewer storage-related product announcements than expected. Wall Street analysts have continued to express concerns about the company's stability, and following McNealy's resignation in April, investors vowed not to purchase any more Sun stock unless the company articulated better strategies for turning itself around financially.
A report released this week by Fitch Ratings New York rated the company as "stable" but rattled off a list of worries for the company's long-term success, including the ability to achieve consistent revenue growth, minimal free cash flow generation, high operating cost structure relative to its competitors, flagging market demand for Unix-based servers and even "execution risk related to its extensive restructuring program."
"To further align the storage group with Sun's other business units -- servers, software, sales and services - we've consolidated the storage business operations, marketing and partner management groups into a single organization," wrote Sun spokesperson Michelle Parkinson in an email to SearchStorage.
"From Sun's point of view these changes … are designed to help Sun streamline its business, accelerate growth and return to profitability."
Insiders give mixed outlook
"There's no question in my mind that of all the major players in the storage market, Sun has been the weakest over the last five years," said Arun Taneja, founder and analyst with the Taneja Group. "There's no question they have to do something."
With any big merger there will be a destabilization for both companies, Taneja said, citing the HP-Compaq merger four years ago.
"I understand why they purchased StorageTek," Taneja said. "The move makes sense for them. But two large companies coming together -- we've all seen that movie before."
But while Taneja said his "jury's still out" on whether the integration with StorageTek will be successful long term, he said he sees the latest reorganization as an encouraging move.
"I hear from companies all the time, particularly startups, who go in to try to partner with Sun, and five or six meetings later they come away frustrated," Taneja said. "If they can cut out deadwood in their organization and improve communication, hallelujah."
But another insider close to Sun's internal workings, who asked to remain anonymous, had a much darker take on the new developments.
"How well can they focus on individual product lines if they're getting rid of individual business units and employees with expertise? Will they have competence in storage?" the source said. "Improving expertise and competence in specific areas were among the reasons for Sun to decentralize in the first place.
"Sun hasn't been doing well for some time -- you can play games with finances and charge off acquisition expenses, things like that, but even with all that, they're still not profitable," the source continued. "The worry is that they're not investing enough to be competitive in the storage business, that they'll just go back to what they were before, a reseller of commodity products."
"There' some fairly dark clouds," Taneja conceded. "But at a fundamental level it could help, if they retain the right people. Promoting Nigel is a good start -- he's a capable individual and comes from StorageTek, which is where the storage expertise is."