Influential Merrill Lynch analyst has published an open letter addressed to Sun Microsystems urging the board to pursue a radical change of strategy.

The letter follows a warning earlier this week that Sun’s first quarter results will fall short of expectations, due to intense competition and tough market conditions. The caution drove Sun’s stock price down by a fifth and prompted calls for radical cost cutting to help it return to profitability.

In his letter, Milunovich suggested that Sun had reached a “point of crisis” and that if it continued with its current strategy it would likely suffer further financial losses and “eventually be acquired for its financial base”.

He recommended that the company should narrow its range of products and become a niche technology supplier rather than a broad-based systems company.

Milunovich added that Sun should start a cost-cutting programme by slashing up to 7,000 positions. He also suggested that the company hire a chief operating officer to balance the influence of CEO Scott McNealy, whom he described as a “maverick”.

But Sun hit back at the analyst saying that its strategy was constantly under review and questioned Milunovich’s understanding of the company. Sun Spokesperson Michael Hakkert says the company is doing a number of things to bring back profitability, and that while it is not considering any major restructuring involving layoffs, it would not rule it out entirely.