Sun misses analyst forecasts for revenue, earnings

Updated at 3:10 p.m., with comments from the earnings call.

Sun Microsystems reported a 7 percent drop in first-quarter revenue on Thursday, coming in the midrange of its previously lowered earnings forecast.

The embattled hardware maker posted revenue of $2.99 billion for the quarter, a drop from its year-ago performance.

Sun also posted a net loss of $1.68 billion, or $2.24 a share, for the first quarter, compared with a net profit of $89 million, or 10 cents a share, a year ago. Excluding its restructuring charge and write-offs for the declining value of its goodwill, Sun posted a net loss of $65 million, or 9 cents a share.

Sun, which issued an earnings warning last week, missed analysts' revised revenue projections of $3.06 billion, according to Thomson Reuters. And the company also missed analysts' earnings expectations of a loss of 8 cents, coming in with a slightly larger loss than Wall Street expected of 9 cents a share.

"Although we saw another quarter of growth in our Solaris-based chip multi-threading and open storage systems, the economic downturn continued to weigh on our customers, especially those that contribute to our traditional high-end businesses," Jonathan Schwartz, Sun CEO, said in a statement.

He added, however, that given the company's strong cash position of $3.12 billion in marketable securities and cash, as well as cost controls and a market that is interested in open source, the company is positioned to weather the tough economic climate.

Sun, which released its results after the market's close, ended the regular trading session at $5.29 a share, up 9.5 percent. But in after-hours trading, its shares fell to $5.13 a share, down 3 percent.

During a conference call, Schwartz said some of Sun's traditional business lines bore the brunt of the pullback in orders, but as its newer lines performed well.

Midrange and high-end servers based on Sparc processors began to see softness starting back in the third quarter of the last fiscal year and fell 27 percent in the first quarter, compared to the same period a year ago.

But in comparison, Sun's Solaris-based chip multi-threading systems, which use Sun's "Niagara" processors, grew 83 percent in the quarter compared with last year.

"I talked to customers who are moving back to Solaris but not on our hardware," Schwartz said, noting he's pleased with the strategy Sun has been pursuing over the past several years where its customers can use its Solaris operating system and MySQL database on other vendors' hardware.

Sun continues to be exposed to the spending vagaries of the financial services sector. Schwartz said orders dropped from these customers.

"We're not naive enough to think that all we need to do is just spend more time with those customers," Schwartz said, adding that the company plans to spend more of its time with those existing Sun customers that are already running MySQL and trying to sell them more Sun software, services, and hardware.

[joetesta70]

Sun is still in business???

Wow. I thought they were retired in Florida with DEC, Apollo, Wang and Novell playing shuffleboard....

[Penguinisto]

Not really surprising, but damn - that's a hefty loss nonetheless.

[Mr. Dee]

Talk about needing a new lease on life. Sun, you should have OpenSource Solaris as far back as 1997, the latest being 1999. You will become even more irrelevant in the next 10 years. Linux still has a lot to catch in terms of features, robustness and scalability in addition to perception. But its becoming predictable where this company is heading. All weird things must come to an end.

[idfubar]

joetesta70 - same comment twice on two Sun stories? Get some new material man...

[joetesta70]

It's time for the CEO to get rid of his skanky ponytail. Men with ponytails look dirty, plus you can pull it off only if you are SUCCESSFUL.

[brian.lee]

The problem with Sun is that they are horrible at capitalizing on Java... Every major corporation out there uses JAVA in one form or another and a lot of enterprise software. If RedHat can make money from Linux why can't Sun make money off Java?

[Canberra-photographer]

The sun will soon go down on... well Sun. They are just too far out.

[dargon19888]

Sun needs to rethink its business model.

After e-mailing their Investor Relations and getting a pretty predictable pat answer, its clear that while they have some superior hardware technology, their marketing and positioning of the company is flawed.

While Sun will like to claim that they are a "solution provider" they are still a hardware company.

I agree that Sun has not capitalized on their Java investment, but one must look beyond Java and look at their other investments in to JavaDB/Cloudscape and MySQL.

My take is that someone will take Sun private and then refocus on their core business. Otherwise Sun will go the way of Cray and Silicon Graphics....

[hutchike]

Sun is complicated. It's like 4 separate companies. First you have the legacy big iron that's shrinking fast. Then you have the sexy new cool toys that are growing but not fast enough. There are all those Sun service consultants out there making money off support and services. And finally there's the R&D - not insignificant at $2bn per year! Taking all 4 together, you're looking at a whopping 33,000 people. Now that's just crazy. No wonder you can't make a decent profit if you're paying 33,000 people, even if you let them work from home to save on office expenses. Sun needs to cut its work force by at least 10% or it's dead within 3 years. Simple.