I think they've finally realised that their previous workstation/Solaris market is being eaten away by increasingly powerful PC's and Linux, or even Windows where windows apps have replaced *NIX apps. Their supercomputer market is probably stable (though much, much smaller).
There are interesting rumours about Sun going to the 64 bit AMD platform, which would enable Sun to make powerful SPARC replacement products that cost much less, and thus able to compete in the high end PC workstation market.