So they lose revenues in the normal part of Sun because those customers now pickup their SW for nothing essentially, and instead of Sun then laying off employees, they are shifted into services. One area goes down, another goes up.

Hardware at Sun then becomes less focused on manufacturing, and more about building a community of external implementors by providing good HW designs and support.

I'm thinking theoretically.

The same people that might make great software producers might be lousy at services, so it's entirely possible that large layoffs would still happen, which would hurt morale. Indeed, 'services' is a different industry, and it's not like you can just pick up from one day to the next and become a services company. IBM managed to do that, so maybe they would be a good fit, but it's not an easy thing to accomplish in any case.