Sun Microsystems "to outsource UK service organisation"

Ongoing cost cutting may pave the way for Sun acquisition

Sun Microsystems this week told employees it is transferring 150 field service engineers to a third-party company within the next two months, according to insiders, as the beleaguered firm looks to cut costs and balance the books in readiness for a possible buyout by the likes of IBM, Fujitsu or even Apple.

Sun insiders allege that Tony Church, director of UK services, told workers on Tuesday that Sun was in negotiations with several specialist pan-European service companies to outsource its "whole field service organisation".

Sources claim that many of the firms’ customers, which include UK banks, building societies and government agencies, will be concerned at the move, because third-party staff will be given access to their premises, datacentres and confidential information.

“These corporations will be very concerned about this downgrading of service quality and site visits from non-Sun-employed service personnel,” wrote an anonymous insider.

The supplier refused to confirm or deny the claims, telling Computing in a statement: “Sun continues to make important choices to streamline operations and align resources to best address market opportunity and position the company for improved financial performance and long-term growth.

"In November 2008, Sun announced a series of changes designed to align its cost model with the global economy and accelerate the introduction of compelling open-source innovations."

To that end, the company has already announced plans to shed between 5,000 and 6,000 employees globally this year - some 15 to 18 per cent of its workforce -and has so far handed 2,800 of those people their notice.

Sun’s dependence on hardware sales in a declining server and storage market has made it vulnerable to acquisition. The company reported net profit of just $403m (£269m) for the fiscal year ending 30 June 2008, despite generating $13.8bn (£9.2bn) in revenue for the same period. The last fiscal quarter ending 28 December 2008 saw a net loss of $209m (£139m) with revenue down 11 per cent to $3.6bn (£2.4bn) year on year.

“It is possible that Sun could be cut into two pieces or more – hardware and software – and maybe a services piece, and anything happening in the UK may be an indication of that,” said Stefan Ried, senior analyst at Forrester Research.

“The value of Sun’s pieces may be higher than its whole, but there is no real evidence of this so far.”

Nor is Sun’s long-rumoured $6.5bn acquisition by IBM necessarily dead, with protracted negotiations still ongoing, according to industry watchers. And other potential buyers with whom Sun has historic links, notably Fujitsu and Apple, may also be waiting in the wings.

“The IBM deal would really be a good fit. IBM sells to executives, and Sun to developers and infrastructure technicians. Sun is not good at execution, and IBM has crucial market access and has made a lot of money out of open-source software,” said Ried.

“The deal could even be welcomed by regulators because it would balance the dominant roles of Intel on the hardware side, and Microsoft on the software side.”