Sun meets earnings forecast, misses on revenue

Sun Microsystems on Thursday reported modest earnings that were in line with Wall Street expectations for its second fiscal quarter of 2005, which ended December 26, but the company fell short on the revenue side.

The computer maker reported revenue of US$2.84 billion and earnings of US$0.01 per share. Revenue declined by 1.6 percent from the US$2.89 billion generated during the company's 2004 second quarter.

Net profit for the quarter was US$19 million, when calculated on a GAAP (generally accepted accounting principles) basis.

Sun's executives attempted to put a positive spin on the news, pointing to volume growth in the company's Xeon- and Opteron-based systems. The company now has "one of its most rock solid product line-ups in history," company chairman and chief executive officer Scott McNealy said in a statement.

Still, the financial analyst community had been expecting more.

Analyst consensus was for Sun's revenue to be up from the year-ago quarter and reach US$2.93 billion with earnings of US$0.01 per share, according to a survey of financial analysts by Thomson First Call.

Sun's revenue has failed to grow more than 1 percent for 15 consecutive quarters, according to a report released Thursday by analyst firm Sanford C. Bernstein & Co.

"Our channel checks indicate that Sun's business did not experience material improvement in the quarter and that the final weeks of December were somewhat disappointing," Sanford C. Bernstein analysts wrote in a report released before the earnings announcement on Tuesday.

Sanford C. Bernstein, which issued a downgrade on Sun's stock last week, said that the company's financials are unlikely to improve over the next several quarters.

The growth of Sun's Java Enterprise System (JES) middleware has tapered off somewhat as the company looks for new customers outside of its existing customer base, Jonathan Schwartz, Sun's president and chief operating officer, said on a conference call with financial analysts on Thursday. Sun said it has now sold 418,000 of the licenses, up 73,000 from the previous quarter's tally, but not as great an increase as Sun has seen in previous quarters.

"After the first six to nine months ... we were out looking for new customers, and building new demand is a little bit tougher," Schwartz said.

The JES, which Sun has been selling for a year and a half now, is offered on a per-employee basis and is one of a number of Sun products sold along unconventional pricing models. Sun has also offered US$1 per processor per hour pricing for some of its server products and even experimented with selling new products on eBay Inc.'s Web site.

Though analysts have suggested that Sun may be rethinking the way it sells JES, the company plans to spend some of the US$7.5 billion, it now holds in cash and securities on similarly novel pricing initiatives, including a plan to sell its SunRay thin client desktop on a per-week basis, according to McNealy, who also spoke on the call.

"We're going to be investing some capital into the N1 Grid (System), as we offer CPU (central processing unit) hours, gigabyte months, and ultimately SunRay desktop weeks out to the marketplace," McNealy said.

Sun's CEO did not rule out the possibility that his company may do some shopping in the year ahead, as well. "We will also continue to look at opportunistic acquisition candidates as we buy IP (intellectual property) or expand the channel going forward," he said.

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