Sun Microsystems narrows loss significantly

Stronger sales of its Solaris 10 operating system helped Sun Microsystems cut its losses significantly in quarterly financial results released Thursday, beating analysts estimates.

Sun posted a net loss of US$56 million or US$0.02 a share, on a 17 percent increase in revenue to US$3.189 billion in its fiscal 2007 first quarter, which ended Oct. 1. Analysts forecast a net loss of US$0.04 a share on revenue of US$3.2 billion.

In the same quarter last year, Sun posted a net loss of US$123 million or US$0.04 cents.

Sun reported operating profit of 43.5 percent of revenue, which is at the high end of its forecast in the range of 42 percent to 44 percent, noted Mike Lehman, chief financial officer of Sun, during a conference call with financial analysts. Lehman forecast percentage revenue growth in the company's current quarter "in the high single digits" with the gross profit again in the 42 percent to 44 percent range.

Factors that turned the operating profit into a net loss were: US$21 million of restructuring and related impairment of asset charges and a US$7 million benefit for related tax effects; US$58 million of stock-based compensation charges; and US$79 million of intangible asset amortization relating to recent acquisitions. The net impact of these four items was a loss of approximately US$0.04 per share, the company said.

Adoption of Sun's Solaris 10 operating system topped 6 million licenses in the first quarter, said Jonathan Schwartz, chief executive officer, adding that 70 percent of them are running on competing hardware from Dell, Hewlett-Packard and IBM.

Schwartz also noted the introduction in the first quarter of new server and storage products, including new storage hardware developed through its acquisition last year of StorageTek.

Sun is appealing to customers "who view IT as a competitive weapon ... rather than a cost center that needs to be cut," he said.

Sun also cited an increase in its services business for the revenue growth and said Computer Systems Products revenue increased 15 percent compared to the year ago quarter, the third consecutive quarter of year-over-year revenue increase.

Schwartz was asked to comment on the announcement Wednesday by database software giant Oracle of its plans to sell support packages for Red Hat Linux. Oracle said its Unbreakable Linux service would strip out all the trademarked features of Red Hat.

Schwartz said the news reinforces Sun's decision to push its own Solaris OS. "It feels great to have an OS that allows us to have control of our own future."

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