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Sun posts net loss of $125 million

Sun posts net loss of $125 million

Sun Microsystems on Thursday reported a net loss of US$125 million for the second quarter of its 2004 fiscal year.

The loss, which amounted to $0.04 per share, came on revenue of $2.89 billion for the quarter, a decline of 1 percent from its year-ago revenue of $2.92 billion. Analysts had been forecasting a loss of $.05 per share, according to a consensus estimate compiled by Thomson First Call.

New initiatives, like Sun's recent alliance with Advanced Micro Devices, have put Sun in a strong position to use "industry economics to deliver extreme performance at compelling price points" in 2004, said Scott McNealy, Sun's chairman, president and chief executive officer, in a statement.

He referred to the quarter, ended Dec. 23, as "a quarter of progress," despite the fact that revenue for Sun's product lines dropped from $2.01 billion for the year-ago quarter to $1.94 billion.

Revenue from Sun's storage division was down 4 percent, to $376 million, Sun said.

Sun's services group continued to be a bright spot. The company reported $944 million in services revenue for the quarter, up from $902 million for the same quarter in 2002.

Sales of high-volume systems like its Sun Fire V series were also positive, McNealy said Thursday, speaking in a conference call with financial analysts. "We have, over the last couple of quarters, now seen some very nice unit volume growth," he said.

Sun may have had success with servers like the Sun Fire V880, but the company is due for an update of its midrange and high-end systems, which have not been selling as well, said Illuminata Inc. analyst Gordon Haff. "There hasn't been much that has happened there from a product perspective," he said.

Sun has now posted losses in 11 consecutive quarters. It's last profitable quarter was the third quarter of its fiscal 2001 year, a Sun spokeswoman said.

With other high technology giants reporting better financial results of late, the pressure is on McNealy now to turn his company around, Haff said.

"Spending is clearly on an upturn now. Hewlett-Packard (Co.) is doing relatively well with their ESS (Enterprise Servers & Storage) group. IBM is doing well. Dell has continued to do well," he said. "Certainly within 2004, Sun needs to show substantial financial improvement over where they've been, or it is really incumbent on their board of directors to make some significant changes," he said.

McNealy downplayed the idea that Sun is considering any radical changes, however. "We are not changing our strategy in the go-to-market sense; we have a wonderful product calendar looking out over the next few years," he said.

Sun plans to cut 300 jobs by moving some of its server and storage manufacturing operations from its Newark, California, campus to Hillsborough, Oregon, the company said.

Asked if Sun plans additional cuts in the year ahead, McNealy said the company is looking to add workers in areas where it thinks it can differentiate itself from competitors, while cutting back in other areas.

Sun's CEO also discounted reports that Sun has been negotiating with Fujitsu to outsource the production of its UltraSPARC processors and high-end servers to the Japanese computer-maker, a long-time partner in designing the SPARC specification that forms the basis of Sun's chips.

As Sun moves towards more complex chip architectures, keeping its chip expertise in house "is going to become even more important," McNealy said.

"At this stage there is no change," McNealy said of Sun's relationship with Fujitsu. "They continue to be a great partner and competitor and customer and supplier all wrapped into one relationship."


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