Sun Micro Profits Slim, Sales Lower

Sun Microsystems Inc. (SUNW) Thursday reported a small quarterly net profit, after a year-earlier loss, but a new range of products has so far failed to ignite sales at the maker of computer servers and storage equipment.

Shares were down 5 percent in after-hours trade.

Sun, which invested heavily in research and development in recent years, expects new computer servers, storage gear, and software and service offerings to bring the company sustained profitability. The company did not provide revenue and earnings forecasts for the current quarter.

"Revenues were well below consensus, that's why the stock's reacting," said Brent Bracelin, an analyst with Pacific Crest Securities. "But this is a company that's focused on profitability despite falling short on revenues. It's not that bad, considering."

For the second quarter ended Dec. 26, the Santa Clara, Calif.-based company said it had net income of $19 million, or 1 cent per share, compared with a year-ago net loss of $125 million, or 4 cents.

Revenue slid 1.6 percent to $2.84 billion from $2.89 billion a year ago and missed Wall Street expectations for revenue of $2.94 billion.

Sun, hit harder in the technology recession than rivals because of its reliance on the telecommunications and financial services industries and a late embrace of the Linux operating system, now has a full lineup of servers running Advanced Micro Devices Inc.'s (AMD) Opteron processor and those using Intel Corp. (INTC) chips.

Chairman and Chief Executive Scott McNealy (search) pointed to what he said was the strongest product lineup in Sun's history and its strategy of bundling hardware, storage, software and services into a single offering as taking hold.

"We are clearly reestablishing relevance in key markets," McNealy said in a statement.

Excluding items, Sun said it had a profit of $28 million, or 1 cent per share, reversing a year-ago loss before items of $99 million, or 3 cents.

On that basis, analysts had forecast a profit of 1 cent per share, on average, within a range of a loss of 1 cent to a profit of 6 cents, according to Reuters Estimates.

In the just-completed quarter, Sun cut its total operating expenses to $1.19 billion from $1.29 billion a year ago, and trimmed its cost of sales to $1.64 billion from $1.68 billion.

Its gross margin, or percentage of revenue remaining after subtracting product costs, was 42.3 percent in the quarter, an increase of 0.5 percentage points from a year ago.

Shares of Sun fell to $4.35 after closing at $4.58 on Nasdaq. At the height of the dot-com and telecommunications booms in 2000, the stock traded as high as $64 a share.