SYSTEMS

CEO Scott McNealy criticised by analysts, Jonathan Schwartz named president. Microsoft to pay US$1.6b to resolve legal disputes -- Sun Microsystems Inc, whose losses in the past six quarters totalled US$3.84 billion, says it will cut 3,300 jobs and named Jonathan Schwartz president after analysts criticised chief executive Scott McNealy's leadership. The server-computer maker also said in a statement that Microsoft Corp will pay US$1.6 billion to resolve legal disputes, and that the loss and sales in the quarter ended March 28 missed analysts' estimates. Analysts such as Merrill Lynch & Co's Steven Milunovich have called on Mr McNealy to eliminate jobs to compete with Dell Inc and Hewlett-Packard Co, which sell cheaper servers with Intel Corp chips and Linux or Microsoft software. Mr McNealy, 49, has said Sun was too slow to offer low-priced servers. Sun mostly uses its own Solaris software and Sparc chips. Sun said that the broad-reaching agreement with Microsoft includes payments of US$700 million to Sun by Microsoft to resolve pending anti-trust issues and US$900 million to resolve patent issues. In addition, Sun and Microsoft have agreed to pay royalties for use of each other's technology. Microsoft will make an upfront payment of US$350 million, and Sun will make payments when the technology is used in its server products. The server maker also said it had a net loss of US$750 million to US$810 million, or 23 cents to 25 cents a share, in the quarter ended March 28. Sales were US$2.65 billion, Sun said. Excluding some costs, the loss would be 6 cents to 8 cents a share, Sun said. Analysts expected a loss of 3 cents and sales of US$2.85 billion, based on the average estimate of 20 surveyed by Thomson Financial. Mr Schwartz, 38, was previously Sun's executive vice-president of software. A successor will be named shortly, Sun said. Sliding sales and the cost of previous rounds of cuts that eliminated 8,300 jobs drove the company to nine quarterly losses in 11 periods. Analysts predict Sun will lose money in every quarter until the fourth quarter of fiscal 2005. Sun's market share of server revenue fell to 11 per cent from 12 per cent in the calendar fourth quarter, according to research firm Gartner Inc. Customers have been seeking cheaper servers, the super-fast machines that run Web pages, data banks and e-mails, and using operating systems such as Linux or Microsoft's Windows. Standard & Poor's, which last month cut its credit rating on Sun's US$1.3 billion of debt two levels to BB+, said Sun is too reliant on servers. IBM can rely on other services and Hewlett-Packard and Dell sell other products such as printers and televisions, S&P analyst Martha Toll-Reed said after cutting her rating last month. That had caused Sun to lag competitors in operating margins, or profit before taxes as a percentage of sales. In its fourth quarter, Sun reported an operating margin of negative 3.2 per cent compared with Hewlett-Packard's 7.2 per cent, Dell's 8.6 per cent and IBM's 14.5 per cent. Sun also has been reluctant to cut its spending on research and development, which accounted for 16 per cent of revenue in fiscal 2003, compared with Hewlett-Packard's 5 per cent and IBM's 5.7 per cent. Mr McNealy has resisted slashing more jobs from its workforce of 35,000. Merrill's Mr Milunovich last October called Sun a 'bloated, underachieving, unfocused' company and said it needs to eliminate 7,000 positions. The company will never return to the profit levels it enjoyed in the 1990s, when it was 20 per cent of revenue, Ms Toll-Reed said. - Bloomberg, Reuters