Sun returns to black after five red-ink quarters

Sun returns to black after five red-ink quarters

Sun returned to profitability in second-quarter fiscal 2007 results released Tuesday

Sun Microsystems, fresh from news of a renewed alliance with chipmaker, Intel, has reported its first quarterly profit in more than a year in financial results.

Sun posted net income of $US126 million, or $US0.03 per share, on a 7 per cent gain in revenue to $US3.566 billion, in its fiscal 2007 second quarter ended December 31, 2006.

It beat the estimates of analysts, who forecast a tiny profit of $US0.01 per share on revenue of $US3.52 billion, according to Thomson Financial, after five consecutive quarterly losses.

Sun reported a net loss of US$223 million, or $US0.07 per share, on revenue of $US3.337 billion in the year-earlier quarter, and a net loss of $US56 million, or $US0.02 per share, on revenue of $US3.189 billion in the previous quarter.

It attributed the revenue gain to strong sales of its x64 line of servers powered by AMD processors as well as growing acceptance of its Solaris 10 operating system (OS).

Sun also announced a $US700 million investment in the company by KKR Private Equity Investors, the publicly traded fund of the private equity firm, Kohlberg Kravis Roberts & Co. KKR will also nominate a director to Sun's board.

"This is an opportunistic investment," CEO, Jonathan Schwartz. Even though Sun has $US2.6 billion in cash on hand and wouldn't necessarily need the additional investment, he said Sun would use the proceeds for strategic investments and growth, without elaborating.

In a later conference call with reporters, Sun's vice-president of finance, Bret Schaeffer, said the deal with KKR was not done as part of a plan to take Sun private, even though KKR engineers leveraged buyouts with many of the firms in which it invests.

The earnings report follows by one day a joint announcement by Sun and Intel to form an alliance to promote each other's core products. Sun will build a line of servers and workstations with Intel chips, including a dual-processor Xeon system expected by the end of June. Intel, in return, has agreed to promote the Sun Solaris OS. Sun stopped buying Intel processors in 2003 when it switched to AMD's Opteron line. Sun also makes its own processors, called SPARC and UltraSPARC.

Sun has undergone a restructuring under Schwartz, who succeeded Scott McNealy in April 2006. McNealy remains chairman. Sun eliminated 5000 jobs but also acquired StorageTek, giving it a foothold in the storage business. Sun has also grown server sales. In the third quarter of 2006, it ranked fourth among major server vendors in sales, but it recorded a strong 15.8 per cent sales increase from the year-earlier, according to an IDC research report.

"Sun's financial performance this quarter demonstrates that our strategy and discipline are paying off," Schwartz said in a prepared statement.

But Sun trimmed its forecast for its current fiscal third quarter, which ends March 30, expecting revenue to be down by between 3 per cent and 5 per cent compared with the second quarter.

"The quarter will be seasonally challenging," Sun's chief financial officer, Mike Lehman, said.

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