Sun Revenue Gains Dampened by Job Cut Charges

Amid talk of looming job cuts, the systems maker sees revenue growth in server and storage businesses.

Sun Microsystems lurching financial recovery continued in its fiscal fourth quarter, as continued revenue growth was overshadowed by charges related to its restructuring plans, particularly around job cuts.

The Santa Clara, Calif., company on July 25 reported a quarterly loss of $301 million, compared with a $50 million profit in the same quarter in 2005.

The loss came despite a revenue gain of 29 percent, to $3.83 billion. Revenue during Q4 in 2005 was $2.97 billion.

During a conference call with analysts, President and CEO Jonathan Schwartz attributed much of the revenue growth to gains in its Solaris 10 and Java software, server sales and its storage business, buoyed by the StorageTek acquisition.

"Im pleased with the initial progress" of the company, Schwartz said. He took over as head of Sun when Scott McNealy stepped down in April.

Under Schwartz, the company has undergone a review of its operations, making some changes in its business—such as merging its two server lines—and announcing plans to cut 4,000 to 5,000 jobs over nine months.

Charges related to the layoffs and other restructuring efforts fed the loss during the quarter, which ended June 30.

However, Schwartz focused more on gains the company has made, including overall server shipment gains of 14 percent, and shipment growth of its Galaxy systems—powered by Advanced Micro Devices Opteron chip—of 53 percent.

Revenue from its T1000 and T2000 servers, which run on Suns UltraSPARC T1 chip—formerly codenamed "Niagara"—reached $100 million, and the run rate for the AMD-based systems has reached $500 million, he said.

The Niagara server ramp was the fastest Sun has seen, Schwartz said.

Sun is continuing to try to rebound from missteps made during the lean years following the Internet bubble. The company for too long ignored the growth of smaller x86 systems and the growing popularity of Linux and Microsofts Windows operating system in the data center.

Now the company is aggressively growing its Opteron-based server line and pushing for leadership in the effort to have greater energy efficiency in data center systems.

/zimages/6/28571.gifSun puts Opteron into blade servers. Click here to read more.

Clay Ryder, an analyst with the Sageza Group, said Sun has been making good decisions lately, but advised caution until the company carries its revenue growth over more than a couple of quarters.

"One quarter a trend does not make," said Ryder, in Union City, Calif. "We need to see if theyll do it again next quarter."

They still have some challenges. Sun was able to ride the leadership that AMD forged over Intel in the area of performance-per-watt. However, Intel is rolling out a new line of energy efficient dual-core Xeons, which could slow AMDs momentum, he said.

Still, Ryder said Sun should be given credit for finally making the right decisions, including in adopting an x86 platform.

"Theyre not out of the woods, but theyve found a flashlight and theyre back on the trail," he said.

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