Sun Microsystems, the world's leading manufacturer of computer network servers, is in deep financial trouble and needs to lay off thousands of employees and refocus its operations, according to some Wall Street analysts.

If it doesn't, the Silicon Valley company is likely to fade away and join the ranks of other technology companies such as SGI and Netscape Communications, warn analysts, including Merrill Lynch analyst Steve Milunovich.

In an open letter to Sun yesterday, Milunovich wrote, "The company has gone from being pure in vision and predictable in financial performance to an underachieving, bloated, unfocused reflection of its former self."

Sun needs to cut up to 7,000 more workers, drop out of some businesses and give the famously combative CEO Scott McNealy 'a makeover'. Otherwise, Milunovich predicted, Sun's ultimate value will only be its customer list for another tech company that buys it, the leading US daily newspaper USA Today reported.

Andrew Neff, an analyst at Bear Stearns, also said Sun needs to do something drastic. "It needs to create a massive sense of urgency to address critical challenges," he said.

Dismissing such talk as 'ridiculous', the company's chief technology officer said Wall Street hasn't grasped that Sun has radically changed its strategy. It's re-engineering the whole way computer systems are put together to simplify the operation of increasingly complex and costly corporate data centres.

Sun says it has already cut back. Twice, it laid off thousands of employees and the company has 36,100 workers today, compared with 43,000 in 2001.

The paper said Sun has its defenders.

Mark Stahlman, an analyst at American Technology Research, said Sun is different from SGI and other losers because it has correctly identified the next wave of technology: the automation of corporate data centres.

IBM and HP are investing heavily in the same field. Stahlman said it's ludicrous to conclude that they have already beaten Sun when corporate customers are just beginning a major wave of new tech investments, the Mercury reported.