Sun's Financials Out of Step With Industry

The industry's rising financial tide apparently is not lifting all boats.

Sun Microsystems' financials continue to be out of sync with the rest of the industry, as the company posted its 11th consecutive year-over-year quarterly revenue decline for a period when other high-tech companies reported explosive growth.

Sun, Santa Clara, Calif., suffered a loss of $125 million, or 4 cents per share, for its second fiscal 2004 quarter ended Dec. 31, compared with a loss of $2.28 billion, or 72 cents per share, in the same quarter a year ago. Sales for the quarter were $2.89 billion, a decline of 0.9 percent from $2.92 billion for the same period last year.

To Sun's credit, its financials were up sequentially. Sales increased sequentially 13.9 percent, while total gross margin for the quarter as a percent of revenue, 41.8 percent, also was a sequential increase of 1.7 percent from the first fiscal quarter of 2004.

Sun's loss also was a penny lower than consensus estimates from Thomson Financial/First Call. Analysts had predicted Sun would lose 5 cents per share for the quarter. However, Sun did not fare as well as Merrill Lynch thought it would. The investment firm last week raised Sun's estimates, predicitng the vendor would produce earnings of 3 cents per share.Other technology vendors, including hardware and software competitor IBM, were much more successful than Sun in the September to December quarter, so much so that IBM boldly declared the end of the IT recession.

For the quarter ended Dec. 31, IBM reported revenue of $25.9 billion, up 9 percent from the $23.7 billion recorded a year earlier. Income for the period was $2.7 billion, or $1.59 per share, compared with $1 billion, or 59 cents per share, for fourth-quarter 2002.

Apple Computer and Intel also had strong quarters, evidence that things might be on the upswing for key companies in the IT industry. Apple reported $2 billion in sales, a four-year high for the company, while Intel more than doubled its net income for the quarter, posting $2.2 billion in earnings on sales of $8.74 billion, a record for the company.

Sun's results were positive enough that Sun Chairman and CEO Scott McNealy remained optimistic Thursday. He said Sun's financials are "on track" so the company can eventually return to profitability, though executives still have no set goal for when that might occur.

McNealy also pointed to increases in Sun's unit volume for the quarter, saying that should continue and eventually pull up Sun's top line."We're getting unit-volume growth in a spectacular fashion," McNealy said. "We can use that to improve revenue."

McNealy also was bullish on potential sales of all of Sun's products and services -- including two new software packages released during the quarter, the Java Enterprise System and the Java Desktop System -- that should help Sun "get back on track in terms of revenue growth."

Sun's stock price was $5.42 in after-hours trading Thursday, up 6 cents from its closing price of $5.36.

Article appears courtesy of CRN.