April 16, 2003 4:33 PM PDT

Sun reports breakeven quarter

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Sun Microsystems on Wednesday reported a breakeven third quarter, meeting Wall Street's earnings estimates but coming in shy on revenue projections.

A number of analysts were expecting the server and workstation maker to post a solid quarter, given the strong quarterly performances by competitors IBM and EMC, which both recently announced year-over-year revenue increases and profit improvements.

Sun reported a net income of $4 million, or zero cents a share, for the quarter, on revenue of nearly $2.8 billion. Last year, Sun reported a third-quarter net loss of $37 million, or 1 cent a share, on revenue of $3.1 billion.

Analysts had expected the company to report a breakeven quarter, according to First Call. But Sun, which posted a 10.2 percent year-over-year revenue decline, fell short of some analysts' revenue projections of $2.9 billion for the third quarter.

Shares of Sun ended the day down 3 cents, closing at $3.32. The company reported earnings after the close of the market. In after-hours trading, Sun shares fell 8 cents to $3.24.

The company's sales softened during the middle of the quarter as customers delayed purchases, particularly with its high-end data center products, Steve McGowan, Sun's chief financial officer, said during a conference call.

As a result, Sun initiated an across-the-board price reduction on its enterprise servers to spur sales. McGowan said sales picked up in the last two weeks of the quarter.

Sun, meanwhile, also is facing constrained market share growth. The company's revenue and unit market share remained virtually unchanged last year when compared with the previous year.

"I wish we were gaining market share like we were three years ago," Sun CEO Scott McNealy said during the conference call. "But while we don't have market share gains, we are holding our own."

In the meantime, Sun is looking to grow its services business like its competitors Hewlett-Packard, IBM and Dell Computer. During the quarter, Sun reported 7 percent year-over-year growth in its services revenue--representing a 32 percent slice of its total revenue pie. That portion has continued to grow from 20 percent two years ago.

The company anticipates some revenue growth in the fourth quarter, but it is too early in the game to offer any percentage estimates, McGowan said.

 

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