Lights Out at Sun

Turn off the lights; the party is about to be over for 4,000 to 5,000 employees of Sun Microsystems (Nasdaq: SUNW  ) . Late Wednesday, the server maker announced a restructuring plan that calls for shedding real estate assets and reducing its workforce by 11% to 13% over the next six months.

Typically, such news brings forth shouts of joy from investors. Though they certainly feel compassion for those losing jobs, a leaner workforce typically translates into a more efficient business. But there's no investor joy today. Instead, skepticism among Wall Street's elite has the stock down by nearly 5%. Apparently, the changes don't go far enough for most to tolerate a position in the stock.

I'll grant you that Sun's corporate governance changes seem to be mostly symbolic. Plus, it's never been proven that cutting costs ignites growth. Instead, cost cuts are intended to match a firm's resources with its cash-generating ability. That seems to be what's happening at Sun; the company is a second-string player behind IBM (NYSE: IBM  ) and Hewlett-Packard (NYSE: HPQ  ) in the server market, which declined in Q1 after ten consecutive quarters of year-over-year growth, according to industry tracker IDC.

Still, the stock is trading as though there's simply no hope of Sun ever igniting growth. I can't believe that. Despite its problems, it has a history of successful research and development. Take the Java programming language, for example. I suspect that's why Sun has been consistent over the years in R&D spending on a total dollar basis. That's a signal that executives believe growth will come from innovation; I believe they're right.

Analysts, however, doubt it. A recent Associated Press story suggests that Sun's growth days are past and that there are no meaningful innovations left that would tip the scales in the server market. Well, Fool, they may be right. But data center requirements have changed dramatically in recent years, and Sun's embrace of the Green Grid initiative proposed by Advanced Micro Devices (NYSE: AMD  ) holds some promise. It's at least worth noting that Sun's shift to Opteron-based servers allowed it to grow year-over-year revenue by 5.8% as the market was slowing. The company also added 800 basis points of market share in Q1.

Has the Sun set forever? Maybe. But I prefer to think of its predicament like a Scandinavian winter; it may be dark for a while, but dawn will come again.

Let us shed light on related Foolishness for you:

High tech. Biotech.Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all forMotley Fool Rule Breakers, and they've unearthed four multibagger picks as of this writing. Find out the names of these market-beaters by asking us for a30-day all-access passto Rule Breakers. It's free, which means all you have to lose is the prospect of richer returns.

Fool contributorTim Beyersworked at Sun in the late '90s. You'll have to forgive him if he's rooting for a comeback. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 513959, ~/Articles/ArticleHandler.aspx, 10/21/2016 8:02:45 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AMD $6.52 Down -0.44 -6.32%
Advanced Micro Dev… CAPS Rating: **
HPQ $13.80 Down -0.30 -2.13%
HP CAPS Rating: ***
IBM $149.63 Down -1.89 -1.25%
IBM CAPS Rating: ****