Sun swings to black in fourth quarter

Sun Monday reported it had swung to a fourth quarter profit compared to a loss last year on essentially flat revenues.

Sun posted net income of $329 million, or $0.09 a share, on revenue of $3.835 billion in the three months ended June 30, reversing a loss of $301 million, or $0.09 a share, on revenue of $3.828 billion in the same quarter in 2006.

The company credited cost-cutting for part of its swing to profitability. Sun trimmed $487 million in expenses in the fourth quarter, cutting the total to $1.49 billion from $1.97 billion a year earlier. It cut general administrative, research and development, purchasing and other costs. Sun also benefitted from lower component costs, such as for computer memory, said Mike Lehman, Sun's chief financial officer, on a conference call with stock analysts that was monitored by reporters.

Sales revenue for Sun servers dropped 15 percent in the fourth quarter from a year earlier, while sales of Sun's x64 servers, in particular, declined 4 percent. Overall revenue fell 2 percent in the U.S. and was flat in the rest of North America and South America. It was up 2 percent in other global markets.

Virtualization may have held down server sales. Virtualization technology helps companies better utilize their servers, reducing the need to buy as many as before. But customers who are buying new servers today are buying more high-end servers, an advantage for Sun, CEO Jonathan Schwartz said on the conference call.

"They're buying more richly configured systems. That plays to our strengths," Schwartz said, citing strong sales of its SunFire T1000 and T2000 servers, Netra UltraSparc blade servers and the X4500 combination server and storage device.

Using its operating margin as a measure of its success at cutting costs, Sun set a goal for itself after its last earnings report for the quarter ended March 30. The company aims to reach a 10 percent operating margin by its 2009 fiscal year, which begins next July. On Monday, Sun said its operating margin was just 2.2 percent for the full year 2007 but rose to 8.5 percent in the fourth quarter. Operating margin is revenue minus expenses, expressed as a percentage of revenue.

For the year, Sun posted net income of $473 million, or $0.13 a share, on revenue of $13.873 billion, reversing a 2006 loss of $864 million, or $0.25 a share, on revenue of $13.068 billion.

Sun makes servers and storage hardware and developed the Solaris 10 operating system.

The IDG News Service is a Network World affiliate.