Sun Microsystems announced Friday that it has moved to a new phase of legal and technical cooperation with longtime foe Microsoft that will involve a payment of $1.95 billion to Sun.
Sun also said Friday that it plans to cut 3,300 jobs after it issued an earnings warning.

The Santa Clara, Calif.-based company also named Jonathan Schwartz, 38, previously executive vice president of software, as president and chief operating officer. Previously, Chief Executive Scott McNealy had said the company didn't need to fill the position after the departure of Ed Zander in 2002.

For its fiscal third quarter, which ended Sunday, Sun expects revenue of $2.65 billion and a net loss of $710 million to $810 million, or 23 cents to 25 cents per share. The loss includes charges of about $350 million for an increase in the valuation allowance for deferred tax assets and about $200 million to restructure its work force and real estate, Sun said.

Excluding the charges, the loss would have been $200 million to $260 million, or 6 to 8 cents per share. The average estimate of analysts surveyed by Thompson First Call was less pessimistic: a loss of 3 cents per share on revenue of $2.85 billion.

The company says it has more than 35,000 employees worldwide, so the layoffs account for about 9 percent of its workforce.

Sun, which chiefly sells powerful networked computers called servers, has been struggling to return to the profitability that rivals such as IBM, Hewlett-Packard and Microsoft enjoy. The company already has suffered 12 straight quarters of shrinking revenue after previously enthusiastic customers from the late 1990s curtailed spending and embraced technology Sun didn't support.

Sun now has made several dramatic changes, including the embrace of x86 processors from Intel and Advanced Micro Devices alongside Sun's own UltraSparc chips and the lukewarm adoption of the Linux operating system alongside Sun's Solaris.

McNealy put the moves in a positive light: "Now is the appropriate time to take cost out and drive productivity improvements in anticipation of returning Sun to sustained profitability," he said in a statement.

"Over the past three years we have made substantial progress in reducing cost and capacity," McNealy said. "We completely revamped our product line, leveraging open source and industry economics while improving product quality and availability. And, we have re-energized our channels and developer communities."

Under the 10-year pact with Microsoft, the software company will pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues, the companies said. The companies will pay royalties to use each other's technology; Microsoft is paying $350 million now, with Sun to make payments when it incorporates technology later.

Offsetting the payments will be a charge of about $475 million total spread over upcoming quarters, including the charge of about $200 million for the third quarter, to pay for the restructuring and reductions in product portfolio, Sun said.
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Allmost 2 FREAKING BILLIONS!! That HUGE!!!!!