Sun Posts $431M Loss in Q2

Server and Java software giant Sun Microsystems Inc. on Friday posted a substantial loss for its second fiscal quarter, while noting that it expects to stabilize by this summer.

Server and Java software giant Sun Microsystems Inc. on Friday posted a substantial loss for its second fiscal quarter, while noting that it expects to stabilize by this summer.

For the three months ended Dec. 30, the Palo Alto, Calif., company reported a loss of $431 million, or 13 cents a share, on revenue of $3.1 billion. This compares to a profit of $423 million, or 12 cents a share, for the same period a year ago. However, Sun officials noted that their fiscal 2002 second quarter revenue bests its first quarter 2002 revenue by 9 percent.

In addition, the company said that excluding certain expenses such as a $511 million restructuring charge, expenses and investment costs, the company would only have lost $99 million, or 3 cents a share. According to Thomson Financial/First Call, analysts were expecting a loss of 4 cents per share on revenue of $3.1 billion.

In a statement, Sun Chairman and CEO Scott McNealy said that "Suns vision, strategy, and execution continue to provide focus and strength in this difficult economic environment."

McNealy pointed out that in October Sun rolled out the first phase of its Sun Open Network Environment (Sun ONE) for delivering Web services. The company also began shipping its Sun Fire 15K server high-end system and Sun Fire V880 low-end server during the quarter. These moves, in addition to expanded partnerships, put Sun in position to take advantage of the opportunities that will arise when economic conditions improve.

"Compared with Suns first fiscal quarter, bookings and revenue in the second fiscal quarter are up sequentially and inventory reductions are in excess of $200 million," said Chief Financial Officer Michael Lehman. "We generated cash in the quarter on an operating basis even with payments weve made on our restructuring, and Suns cash and liquid marketable investment position remains strong at approximately $6 billion."

However, Lehman said, "its hard to quantify the impact of Sept. 11. Companies negatively impacted by these events continue to be impacted."

He also said the majority of the 3,900 people Sun sought to cut from its payroll are gone, with the remaining portion of that target number leaving in the third and fourth quarters.

"We expect a return to profitability by the June quarter," Lehman said.

Meanwhile, Sun President Ed Zander said he saw seven reasons to be pleased over the last quarter: The company restored predictability in its business; grew revenue and bookings and decreased inventory; saw strong demand for its high-end servers; saw significant success in expanding into new industries; strengthened partnerships with best-of-breed suppliers; saw its quality initiative begin to pay off; and resized the company without sacrificing core research and development.

McNealy said what has kept the company in the game is its ability to adapt and persevere through tough times.

"A lot of customers just arent buying anything right now," McNealy said of Suns core customer base of telecommunications companies and financial services organizations. "So we just went out and got a whole mess of new designs" in other areas.

In addition, McNealy said Suns Java-based initiatives are paying off. "Were gaining developers faster with our Sun ONE architecture than Microsoft is with .Net."

He also said Sun is digging in for a "ground war" with IBM and its powerful IBM Global Services division.

Both McNealy and Zander expressed doubt that IBMs Global Services clout can continue in a 2002 climate.

"This is like back to the future in the 70s," Zander said of IBM. "Back then they said, We do it all, buy it from us. Now its the same story. Id rather take all the service providers and software companies and work with them to provide best-of-breed solutions."

And McNealy said he anticipates Suns core markets will come back strong when the economy rebounds.