Sun posts break-even quarter

Sun Microsystems barely achieved profitability for a second straight quarter, ending a fiscal year that saw the company's revenue drop 8.5 per cent from fiscal 2002 to $US11.4 billion.

"We certainly had our share of challenges throughout the year, but we finished in a strong financial position," Sun's chief financial officer, Steve McGowan, said.

Sun reported revenue of just under $US3 billion for the fiscal fourth quarter, which ended June 30. When measured on a non-GAAP (generally accepted accounting principles) basis, Sun's net income was $US24 million.

When measured on a GAAP basis, Sun's net income was $US12 million.

Revenue for the quarter was down 13 per cent from last year's fourth quarter, when Sun booked $US3.4 billion in revenue. Sun's revenue for its 2002 fiscal year was $US12.5 billion.

The company's services and storage businesses performed well, according to Lehman Brothers Holdings financial analyst, Dan Niles, but Sun's server business continued to perform below expectations, he said.

"Sun's in a very tough spot," Niles said. "They're stuck between Intel taking share on the midrange and low end, and IBM on the high end. Sun's caught in a classic squeeze play between the two."

The company's server business has had difficulties, in particular at the midrange of the market, where servers cost between $100,000 and $1 million, IDC analyst, Jean Bozman, said.

Sun had been struggling, not because it was failing to sell servers, she said, but because prices had been dropping.

"What you see is average sales prices going down," she said. "They're still selling a lot of product."

Sun's server numbers were further hurt by delays in shipping the company's SunFire V210 and V240 servers, which had been expected to ship in the fourth quarter, McGowan said.

The delays cost Sun about $US50 million in business, he estimated.

The company's server business earned $US1 billion in revenue for the quarter, Sun said, up from just under $US920 million in the same quarter of 2002.

"The good news is that they're back to being sort of break even," Lehman's Niles said, but he questioned whether Sun's revenues were enough to support its 35,000-strong employee base.

"At a certain point, break even isn't going to cut it. You need to either get the profitability up so you can support your employee base or you need to go through further restructuring," he said.

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