Great news, right? Until you realize that the “planned reductions” to which the company refers were up 47 percent from a year earlier and are still at recession levels. So while this is the third consecutive month in which layoffs declined, the job market is still in lousy shape.

Employers have sacked 711,100 employees so far this year. That’s 145 percent percent more than the 290,671 they cut in the first quarter of 2008. Keep in mind, this is “planned layoffs” we’re talking about. Presumably there were some unplanned ones as well.

“Job cuts are still at recession levels, but the fact that they are falling is certainly promising and may suggest that employers are starting to feel a little more confident about future business conditions,” said Challenger CEO John Challenger. “Hopefully, the next few months will bring further relief, as we tend to see downsizing activity slow during the summer months.”

Yeah, “hopefully.” But don’t count on it. Because Federal Reserve Chairman Ben Bernanke says the economy hasn’t quite bottomed out yet. Which means things may get a bit worse before they get better.

“The most recent information on the labor market–the number of new and continuing claims for unemployment insurance through late April–suggests that we are likely to see further sizable job losses and increased unemployment in coming months,” Bernanke recently told the congressional Joint Economic Committee.

And that may well be the case. IBM (IBM) was reportedly offering $9.40 a share for Sun (JAVA), nearly double Sun’s share price before investors caught wind of talks between the two companies. Seems a good price for Sun given its current situation. Certainly, there are no other offers on the horizon. Nor are there likely to be. “Others have already passed over Sun–given that, we’re unsure who would step up to the plate,” Edward Jones analyst Bill Kreher told Bloomberg. “We are unsure if the company can execute a successful turnaround on its own. Their future is very uncertain.” Toni Sacconaghi, an analyst with Sanford C. Bernstein, agreed. “A collapse in the talks has considerably weakened Sun’s hand, as we see no other likely suitors,” he said in a research note.

If that’s the case and discussions with IBM are truly finished–and there’s a chance that they might not be–Sun could be left facing some unpleasant options. “Sun will have to take alternatives by either splitting up or downsizing,” said George Weiss, a Sun analyst at Gartner. “Sun still has several options, since there are parts of the company that could bring value to one or several companies on the market. But those companies probably won’t want to acquire Sun as an entire entity.”

And that may well be the case. IBM (IBM) was reportedly offering $9.40 a share for Sun (JAVA), nearly double Sun’s share price before investors caught wind of talks between the two companies. Seems a good price for Sun given its current situation. Certainly, there are no other offers on the horizon. Nor are there likely to be. “Others have already passed over Sun–given that, we’re unsure who would step up to the plate,” Edward Jones analyst Bill Kreher told Bloomberg. “We are unsure if the company can execute a successful turnaround on its own. Their future is very uncertain.” Toni Sacconaghi, an analyst with Sanford C. Bernstein, agreed. “A collapse in the talks has considerably weakened Sun’s hand, as we see no other likely suitors,” he said in a research note.

If that’s the case and discussions with IBM are truly finished–and there’s a chance that they might not be–Sun could be left facing some unpleasant options. “Sun will have to take alternatives by either splitting up or downsizing,” said George Weiss, a Sun analyst at Gartner. “Sun still has several options, since there are parts of the company that could bring value to one or several companies on the market. But those companies probably won’t want to acquire Sun as an entire entity.”

For the May 2009 fiscal year, Klasell cuts his EPS estimate to $1.38, from $1.41. For FY 2010, he goes to $1.51, from $1.58. Klasell’s new price target is $20, down from $24. Klasell maintains an Overweight rating on the stock.

“Our checks indicate that deals continue to be signed, but many deals are subject to downsizing and [there are] some reports of greater-than-normal discounting,” he writes in a research note.

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