from:
http://www.reuters.com/news_article....toryID=1221776

Technology - Reuters

Sun Returns to Profit, Sees Another Loss
Thu Jul 18, 8:17 PM ET

By Peter Henderson

SAN FRANCISCO (Reuters) - Computer maker Sun Microsystems Inc. reported on Thursday its first quarterly profit in a year but forecast another loss as it fights for deals in the midst of the technology downturn.

Santa Clara, California-based Sun, which makes computers that manage networks, said it had missed profit-margin targets but beat Wall Street revenue expectations, in part, because it had cut prices in the current, tough market.

"People think we're getting squeezed, yet we're gaining share," Chief Executive Scott McNealy crowed in a conference call, repeating Sun's mantra that the key is to do better than rivals like International Business Machines Corp.


Shares of Sun dropped in after hours trade to $4.90 on Instinet from a close of $5.80 on the Nasdaq, where they had gained just over 2 percent during the day.

"The stock needs economic recovery to succeed," said Alan Loewenstein, co-portfolio manager, of the John Hancock Technology Fund, which owns Sun shares.

"Investors want to see sequential earnings growth which won't happen in the September quarter based on current expectations."


Sun reported a profit of $20 million or 1 cent per share, compared with a loss of $88 million or 3 cents per share in the fiscal fourth quarter a year ago, when the Internet-fueled computer upstart posted its first loss in a decade.

Sun earned $28 million, or 1 cent per share, excluding an $18 million loss on equity investments, a $4 million credit for adjustments to restructuring charges, and a $6 million benefit for related tax effects.

Revenues were $3.4 billion compared to $4 billion in the year-earlier quarter.

Analysts polled by Multex had expected on average a profit of 1 cent per share on revenue of $3.3 billion, with a range of forecasts per share from a 1-cent loss to a 2-cent profit.

JOBS CUT, COSTS TRIMMED

Sun has cut jobs and trimmed costs to lower its break-even point, but its gross profit margin fell from the previous quarter to 41.1 percent of sales in the fourth quarter. The company had forecast a slight improvement on the previous quarter's 42.1 percent.

Chief Financial Officer Steve McGowan forecast a slight loss in the current quarter, as revenue fell 10-15 percent and margins were steady. He saw revenues rising 10-15 percent for the full year and earnings of 10-15 cents per share.

Analysts polled by First Call, on average, had seen fiscal 2003 earnings of 17 cents per share.

Executives defended the late-quarter surge in revenue, saying they had not cut prices to make up for a shortfall or stolen from the first quarter to "overcook" sales.

"Our intention is to take market share," McGowan said. "The state of the economy is still unchanged and uncertain."

He added to reporters: "It is very difficult selling. It is very challenging. It is very price competitive."


Shares of Sun have fallen more than 50 percent this year, compared with a nearly 30 percent fall for the American Stock Exchange Computer Hardware index <.HWI>.

The company also announced Masood Jabbar, head of the global sales operations, was stepping down -- following retirements by a number of his colleagues -- and would be succeeded by the European sales chief, Robert Youngjohns.

That raised a flag for Lehman Bros. analyst Dan Niles, who had been disappointed by Sun's guidance but pleasantly surprised by its competitive performance.

"Sun's got a lot of people, but it's lost a lot of good bodies," he said. "I look at it this way: the people who are leaving know the company a lot better than I am ever going to." -Dan Niles


I dont know for sure, but apparently they are having alot of monetary problems. I hope they dont go out of business. What do you all think?