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Sun reported revenue of $2.7bn for its first financial quarter, which ended 29 September, marking a 4% drop from the same quarter a year ago when it pulled in $2.9bn.
About 4,400 employees are likely to go. Sun employs around 39,000 workers.
Workers in the US will be notified of their status at the company over the next month. Employees outside the US will be laid off over the next few months, said Steve McGowan, Sun's chief financial officer and executive vice-president of corporate resources.
"It's a tough decision, but I think it's the right one to go and do at this point," said Sun chairman, president and chief executive officer Scott McNealy. "I think we are doing this in a reasonable and responsible way."
Sun expects to take a charge of approximately $300m in its second financial quarter as a result of the reduction in staff.
The company reported a net loss of $111m. Excluding charges for investment losses, previous restructuring costs and tax effects, Sun reported a net loss of $78m.
Reports issued earlier this week from Merrill Lynch and Sanford C. Bernstein said that Sun could announce layoffs of up to 8,000 people or 20% of its workforce. [See "Analysts say Sun might cut up to 8,000 jobs," Oct. 15]
Sun lost large amounts of business as telecommunications companies pulled back on IT spending.
Sun's four-processor and eight-processor servers were the top sellers in the quarter, McGowan said. Sun's services business also grew 8% year on year.
Sun also turned a profit on its StarOffice productivity suite, with more than $5m in revenue.
Worldwide sales revenue fell 7% in the US compared with the same period last year. European revenue stayed the same, and revenue dropped 13% in Japan.
The Sun executives stood by the company's long-held commitment to keeping research and development spending high even in tough economic times. McNealy expected demand for high-end Unix servers to return as the economy rebounds.
Sun will roll out dual-core UltraSPARC IV processors next year, and release the first chip technology derived from its acquisition of Afara WebSystems at this time next year. This technology is expected to include multicore processors for servers with one to four processors.
The company will also continue to rely on its strategy of joining with software makers, resellers and integrators to compete with IBM and Hewlett-Packard, McNealy said.
Sun expects to return to profitability in the second half of its financial year.