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Sun Shares Fall

Associated Press
Published | Updated

SAN JOSE, Calif. – Shares of Sun Microsystems Inc. (SUNW) slipped Wednesday after the maker of servers and software posted a loss in the first quarter of its fiscal year despite a boost in sales from two recently closed acquisitions.

Shares of Sun fell 8 cents, or 2.1 percent, to $3.77 in early trading on the Nasdaq Stock Market. The stock has traded in a 52-week range between $3.42 and $5.65.

The company, which has been struggling to sustain profitability since the tech bust of 2000, maintained that its recovery remains on track.

"We are confident in our product strategy, and as momentum behind our execution builds, we are beginning to fire on all cylinders," Scott McNealy, Sun's chairman and chief executive, said Tuesday. Sun released its earnings after financial markets closed Tuesday.

For the three months ended Sept. 25, Sun lost $123 million, or 4 cents per share, including a $50 million expense related to stock options. That compares with a loss of $133 million, or 4 cents a share, in the first quarter of fiscal 2005.

Excluding special items, Sun lost $68 million, or 2 cents per share, compared with a profit of $27 million, or a penny per share, in the same period last year. Excluding the stock charge, Sun would have lost $18 million, or 1 cent per share, in the most recent quarter.

Revenue grew 3.7 percent to $2.73 billion from $2.63 billion in the first quarter of 2005.

Analysts were expecting Sun to post a penny-per-share loss on sales of $2.9 billion, according to a survey by Thomson Financial.

Following its usual practice, Sun did not release an earnings or sales forecast for the fiscal second quarter.

The first quarter was the first to include results from Sun's acquisitions of Storage Technology Corp., a data archiving equipment and software maker, and SeeBeyond Technology Corp., a business integration software maker. Both deals were closed in August.

The two companies contributed a combined $226 million in revenue. Chief Financial Officer Steve McGowan said the company is "very pleased" with the integration to date.

Sun also said the company's lower-end server strategy is paying off. In a break with its practice of supplying both the hardware and software of its higher-end systems, it's now selling servers based on Advanced Micro Devices Inc.'s Opteron chip that can run operating systems other than Sun's Solaris.

In the first quarter, Sun shipped about 71,000 computer servers, an improvement of just 2 percent. Of those, 14 percent were Opteron-based systems — an increase of 109 percent from last year, McGowan said.

Sun also said it sees opportunity to expand its server business as it interacts with the customers of its newly acquired companies. And Sun also plans to boost its offerings in software and services.

Earlier this month, Sun and Google (GOOG) announced plans to collaborate on various projects, though neither company would divulge specifics. The search engine also was widely expected to purchase Sun equipment.

"We have an opportunity to improve productivity and cut costs while growing our way to a better and a more comfortable operating environment," McNealy said. "I don't think anyone feels comfortable about bumping around where we are today."