Sun Microsystems: Orders Lag but Targets June Profit

SAN FRANCISCO – Computer maker Sun Microsystems Inc. (SUNW) said on Thursday that corporations were still holding back from investing in technology but stood by its forecast of a return to profit in the June-ending quarter.

Chief Financial Officer Michael Lehman told analysts in an eight-minute mid-quarter update that Sun's order flow was not as smooth as in the March quarter and that corporate technology spending was still constrained, as it had been when Sun reported its third quarter results a month ago.

"It is a little frustrating that we are not seeing a better pickup," said Craig Braemer, fund manager with Highmark Growth Fund, in San Francisco, who is not a major Sun shareholder.

Shares of Sun in after hours trade gave up the day's 1 percent gain and part of the previous day's 7 percent rise, falling to $7.09 on Instinet from a close of $7.41 on the Nasdaq.

Sun leads the field selling powerful servers running on Unix, but its meteoric rise in the late 1990s was halted by the implosion of the dot-com sector. The company has posted losses for four consecutive quarters.

Its progress is viewed as something of a bellwether for the chances for a wide technology investment rebound, which has been predicted a number of times but so far failed to materialize.

"It is not a rocket ship off the bottom, and some people had those thoughts at the beginning of the year," Braemer said. But Sun's report was no surprise either, he added.

'WAYS TO GO'

Lehman said the slower orders, or "order linearity," meant that "we have a ways to go," but the lag was "certainly not abnormal" and "not of great significance."

He said there was no need to change his April 18 forecasts of a fourth-quarter return to profit, a gross profit margin slightly up from the 42.1 percent in the third quarter, modestly increased revenues from the $3.1 billion posted in the third quarter, a marginal increase in expenses and continued positive cash flow.

"The only real change was the linearity and for me it was not shocking," said John Park, a computer hardware analyst for Independence Investment, an affiliate of John Hancock.

"They made similar comments in the March quarter and for the most part that quarter came in roughly within expectations," he said.

Analysts currently expect earnings per share between nil and 2 cents, with the Wall Street consensus a profit of 1 cent per share on sales of $3.3 billion, a poll by Thomson First Call showed.

Shares of Sun have underperformed those of rival International Business Machines Corp. by nearly 20 percent since the beginning of the year, although both are down.