Microsoft Q4 earnings up; Sun reports revenue drop

Microsoft Corp. today joined the select group of technology vendors that managed to increase their revenue and earnings during the latest quarter. But, like many other companies, Sun Microsystems Inc. went the other way.

Microsoft reported a 13 percent year-to-year increase in revenue for its fiscal fourth quarter ended June 30, hewing to a projection made by the company last week (see story). The company said it did US$6.58 billion worth of business in the just-finished quarter, up from the year-earlier total of $5.8 billion.

Operating earnings in this year's fourth quarter amounted to $2.75 billion, up 8 percent from $2.55 billion. As expected, though, Microsoft suffered a $2.6 billion investment loss fueled by a $3.9 billion charge related to its stock ownership in other companies. That left the software vendor with net income of just $66 million during the fourth quarter.

In addition, Microsoft said it expects results in the current quarter to fall below the fourth-quarter levels. Revenue in the company's fiscal first quarter were projected to come in between $6 billion and $6.2 billion, with profits likely ending up in the $2.6 billion range. That's below the average revenue target of $6.3 billion put in place previously by financial analysts who were polled by Boston-based First Call/Thomson Financial.

Meanwhile, Sun disclosed that its fourth-quarter revenue fell 20 percent during the fiscal period ended June 30. Revenue for the quarter was $4 billion, compared with $5.02 billion in the fourth quarter of fiscal year 2000.

In May, Sun had said revenue for the quarter would be down slightly from the third quarter, "in the $3.8 billion to $4 billion range," with profits between $0.02 to $0.04 per share.

The hardware and software maker posted pro forma net income for the quarter of $134 million, or $0.04 per share. That's down dramatically from $717 million in the same period a year ago.

When special one-time acquisitions, equity gains or losses and other charges are included, Sun's loss in the quarter totalled $88 million, or $0.03 per share. That compares with earnings in the year-ago quarter of $270 million, or $0.21 per share.

For all of fiscal 2001, Sun reported revenues totalling $18.25 billion, up from last year's revenues of $15.72 billion. Pro forma net income was also down. Sun said it earned $1.45 billion for the fiscal year, compared with last year's pro forma net income of $1.86 billion. For the year, pro forma earnings per share were $0.42.

In a statement, company officials blamed the same high-tech industry downturn that has plagued other companies, with Chief Executive Officer (CEO) Scott McNealy saying Sun had weathered "unprecedented economic challenges" during the quarter. "Yeah, we have taken a haircut in earnings, but we are protecting what matters, and that is the long-term assets," McNealy said during a conference call.

Michael E. Lehman, Sun's chief financial officer (CFO) and executive vice president of corporate resources, said the company has worked to lower its costs, noting that it had trimmed expenses 10 percent in the quarter when compared with the fourth quarter of 2000. At the same time, he said research and development spending had risen 17 percent.

"Our balance sheet remains strong, with more than $6 billion in cash," Lehman said in the statement. "Going forward, we intend to intensify our efforts to streamline our business model and generate even more cash to provide flexibility for our long-term growth." But Sun offered little guidance for the months ahead, saying market conditions make it hard to give accurate predictions.

Today's earnings announcements came on the heels of reports from IBM, SAP AG and Siebel Systems Inc., all of which announced second-quarter profit increases. But both IBM and San Mateo, California-based Siebel warned that the rest of the year might be more difficult.

Material from the IDG News Service was used in this report.

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