Sun Upbeat on Finances and Prospects

Sun Microsystems Inc. executives on Wednesday gave an upbeat presentation on the companys finances and its prospects going forward.

The Santa Clara, Calif.-based systems company, has taken heat from Wall Street in recent years for its financial performance, but Steve McGowan, Suns chief financial officer, told attendees at its annual analyst day in San Francisco on Wednesday that it could execute on its fiscal and financial goals.

Revenue projections for the company for the 2004 fiscal year were pegged at some $11.4 billion, he said, adding that these were street numbers and not endorsed by Sun. This was effectively flat from last year and slightly lower than 1999 “pre-bubble” levels, he said.

Revenue numbers for its just-completed second quarter were also effectively flat from a year ago.

“So we have stopped the decline that we were seeing, sequentially, quarter after quarter. We need a basis to stop the erosion we had and to start the growth, for us to start to turn this back up,” McGowan said.

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Sun expected to see a growth in services, mainly from support services, he said, adding that the services business was currently about a third of Suns business. But it was a different story on the product front, with storage expected to be flat year-on year and the computer systems piece down a bit.

However, the message around computer systems was volume.

“We are really driving hard to get the unit volume up. In fact, the first six months of the current fiscal year was one of the highest of unit volume in the companys history,” McGowan said.

Sun would also exceed the $250 million in cost savings it had targeted in fiscal 2004, with the main benefit coming from improvements in components and spare parts, with disc drives and processors as the two biggest parts.

Suns three immediate financial goals were to grow revenue, achieve sustained profitability and generate cash flow from operations, while the key areas for cost reductions were increasing productivity and getting costs under tight control.

Sun was also behind in its resourcing position, McGowan said. The company would now be driving towards a leadership position in this regard, with shared resource centers being expanded, he added.

“Our back office will also be transitioned to a partners front office for things like payroll, while our front office can be put into things like shared services, so Sun can convert its fixed costs into variable costs, which involves intensely scrutinizing all of our long-term leases when they come up for renewal,” McGowan said.

The company also had $5.161 billion cash on hand, which was likely to rise over the year, he said, adding in conclusion that Sun had “a strong balance sheet and liquidity which gives us flexibility to execute. We have that. We are also intensely focused on revenue growth and sustained profitability and cash generation. We can execute,” he said.

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