Is Sun ripe for a takeover?

Sun Microsystems' profit warning and the slashing of 4,000 jobs could make the server giant a tempting takeover target, according to analysts.

CEO of Bloor Research, Robin Bloor, and Clive Longbottom, service director at analyst house Quocirca, both agree that Sun's curent difficulties make it highly vulnerable to a larger predator.

Just this week, CEO Scott McNealy said the difficult economic conditions forced him to make structural changes to the company, laying off nine per cent of its workforce at a cost of $500m.

Sun forecasts it will lose between five and seven cents per share for the first quarter ending September 30th, down from previous estimates predicting a loss of just three cents a share. Revenue will fall to between $2.7bnto $2.9bn a quarter. This could see Sun report a loss of as much as $200m.

In a statement, McNealy said it was only the efforts of the Sun workforce that prevented the cuts being even deeper. He added the terrorist attacks of 11 September had made a big impact on Sun's sales, and had increased uncertainty in the US and global economy.

But Robin Bloor, CEO of Bloor Research, said: "You don't see IBM, with its large services business, announcing profit warnings. You have to ask whether, in a shrinking market, a hardware vendor like Sun can survive independently."

Clive Longbottom, service director at analyst house Quocirca, added: "This is the problem with only having one product - you don't spread your risk. I would now see it quite likely that Sun could become a take-over target, for a company like Fujitsu, for example."

Sun made its announcements at a hastily convened conference call to analysts, in which it was able to offer no financial guidance as to the firm's performance beyond the current quarter. Sun's share price fell 4.5 per cent on the news.

Sun UK corporate affairs manager Jon Tutcher said it isn't yet clear whether the redundancies would affect the 3,800 UK staff.

Sun's Tutcher denied Sun's decision to steer clear of the services business had been a mistake, and said the company does not see the need to look for merger partners.

Although the company shed 300 jobs in a cost-cutting exercise at the start of August, it has managed to hold out longer than many rival tech firms - such as HP and Compaq - because of its growth over the last three years.

Analysts in the most part agreed with McNealy's declaration that Sun was performing as best as it could in a tough - and worsening - global market.