Sun Reports Another Down Quarter

As other tech vendors shine, Sun Microsystems reported a loss for the quarter and saw revenues drop 8 percent over the year-ago period.

Sun Microsystems Inc., at a time when competitors are beginning to see their financial situation stabilize, lost $286 million in its first quarter of fiscal year 2004 and saw revenues drop 8 percent over the same period last year.

The loss during the three months ended Sept. 28 was almost three times that of the $111 million in the first quarter last year. The $2.5 billion in revenues was an 8 percent decline from the more than $2.7 billion from the same time last year.

In addition, revenue was down in every region, including a 26 percent drop in Japan, according to Steven McGowan, chief financial officer and executive vice president.

During a conference call with analysts on Thursday, officials with the Santa Clara, Calif., said they understood the need to increase revenues, but added that much of that had to do with changing peoples perception of the company and encouraging them to spend money in a difficult economy.

"We know what weve got to do, especially on the perception side," said Neil Knox, executive vice president of Suns Volume Systems Group, which is one of the areas that Sun is touting.

The company is continuing to push its low-end strategy, with two-way and four-way servers that not only run on SPARC chips with the Solaris operating system, but Intel Corp.-based systems with x86 Solaris and Linux. And it is bringing down the costs of these machines.

Knox pointed out that a two-way SPARC/Solaris system costs 65 percent less than a year ago, and a four-way server is 45 percent less.

/zimages/5/28571.gifClick here For more details on Suns entry-level servers.

In addition, the company is targeting Microsoft Corp.s Windows operating system, rolling out Java Enterprise and Java Desktop systems with prices ranging from $50 to $100 per employee. Sun took 224 software products and boiled them down into two software systems, said Chairman and CEO Scott McNealy.

"These products are done, weve launched them and were running Sun on these types of products," McNealy said.

He also said that Sun is well positioned in the systems space.

"If you look at the entry-level server business, its going to be here a long time, but its a dog fight," McNealy said. Regarding the high end, server consolidation will fuel that business, but that wont happen immediately. "People are not spending. Its brutal, and it will stay brutal for a long time."

But at a time when IBM and Intel have grown revenues, both McNealy and McGowan admitted they realize the need to find ways to turn the company around. And the turnaround will have to be on the strength of its technology, not a change in the economy, they said.

"This is a revenue story," McGowan said. "Weve got to get the revenues up to talk about sustained profitability. … This companys got to start growing again and make a profit."

/zimages/5/28571.gifeWEEK editors recently spoke with Sun Fellow Jim Mitchell about Suns research and the future of enterprise computing.

"Were not counting on the economy," McNealy said. "Were going after a ton of dollars we think have been misspent [by customers buying products from Sun competitors]."

In September, Sun officials said they were cutting 1,080 jobs as its finances continued to wane. McGowan said the company reached its key financial targets for the quarter and that no layoffs were planned. But he warned that if financial problems continued, more job losses could result.

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