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Sun Micro: Cutting Heads Is a Tactic, Not a Strategy

November 17, 2008
by Eric Savitz
Blogger and Columnist, Barron's, Tech Trader Daily

Eric Savitz

So, Sun Microsystems (JAVA) finally caved in to Street pressure on Friday and announced plans to cut 5,000-6,000 jobs. But if you thought the move was going to ignite a new wave of love for the stock, you thought wrong.

The Street’s reaction boils down to two parts. One, it’s about time. The company tried to blame the cuts on the economy, but this is more about Sun’s own issues than what’s unfolding in the rest of the world. And two, it’s not going to be enough to fix the company. Here are a few samples of the current Street sentiment on Sun:

Merrill Lynch’s Jeff Fidacado today repeated his Underperform rating on the stock, asserting that it will take several quarters for margin improvements from the cost cuts to offset declining revenues. “Sun’s cost-reduction initiatives come at a time when revenue growth of its legacy high-end server platform is deteriorating and the most recently shipped innovative products are not large enough to offset this decline.”

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