Sun Microsystems reports narrower third-quarter loss than anticipated

The Associated Press
Saturday April 20, 2002

SAN JOSE, Calif. — Sun Microsystems Inc. posted a slim third-quarter loss that beat Wall Street expectations by a penny, though the company — still faced with slumping demand for high-powered network servers and workstations — had sequentially flat revenues. 

The company also said Thursday afternoon it planned to cut 1,000 jobs from its staff of roughly 39,000 over the next six to nine months. The layoffs will come through attrition, performance reviews and paring redundancies, the company said. 

For the three months ended March 31, the Palo Alto-based network equipment maker reported a net loss of $37 million, or a penny per share, on revenues of $3.1 billion. In the comparable period last year, Sun earned $136 million, or 4 cents a share, on revenue of $4.1 billion. 

Excluding one-time items, the company said it lost $26 million, or a penny a share, compared to a profit of $145 million, or 4 cents a share, in the year-ago period. 

Analysts were projecting a loss of 2 cents a share on revenue of $3.2 billion for the third quarter, according to a survey by Thomson Financial/First Call. 

Sun officials said the economic environment is still challenging, but the company still expects to return to profitability in the current quarter as previously forecast. 

“My take is that activity level is increasing, but you still have to fight for every deal,” Ed Zanders, company president and chief operating officer, told analysts during a conference call. “Every CIO is forced to do more with less.” 

After strong growth during the high-tech boom, Sun was hit hard as large companies reduced spending and dot-coms shut down. 

But Sun has been executing well in controlling costs and introducing new products, said Eric Rothdeutsch, analyst with Robertson Stephens. Yet with demand still weak, the company’s revenue is inevitably affected, he said. 

“They’re doing the right things,” and that should help the company sustain profitability from the current quarter onward, said Brent Bracelin, a Pacific Crest Securities analyst. 

In addition, if IT spending starts to pick up again in the second half of the year as some industry observers expect and companies continue to migrate toward even higher-end servers, Sun is in a good position to benefit, analysts say. 

“Folks are coming up on three-year maintenance contracts that are starting to expire, and they’re looking to move from, say, 10 servers down to five, and that plays well into Sun’s core market,” Bracelin said. 

Shares of Sun rose 29 cents to close at $8.52 in regular trading on the Nasdaq Stock Market, and fell 27 cents to $8.25 in after-hours trading. 

For the nine months ending in March, the company said it lost $648 million on revenues of $9.1 billion. In the same period a year ago, the company earned $1 billion on sales of $14.2 billion.