Sun says Q4 profit drops, warns of US economic downturn

Sun Microsystems' profit dropped sharply for its fourth quarter as the company warned that economic troubles in the U.S. would mean lower IT budgets and smaller deals.

Sun reported a net income of US$88 million for its fiscal fourth quarter, compared to $329 million for the same period a year prior. Revenue came in at $3.78 billion, down 1.4 percent from $3.835 billion a year prior.

Around 40 percent of Sun's revenue comes from U.S.-based companies. Those customers are mainly in the telecommunication, financial services and government sectors, all of which have been affected by the current financial difficulties, said Michael Lehman, Sun's chief financial officer.

Sun's CEO, Jonathan Schwartz said on a conference call that when U.S. Treasury Secretary Henry M. Paulson announces more bailouts of financial institutions, that will affect demand for IT products. Instead of $100 million product deals, Schwartz expects to see deals in increments as low as $50,000.

Sun is still reducing its number of employees and will drop to 33,000 workers by the end of fiscal 2009, Lehman said.

One of the high points for Sun is its Niagra server line, which Schwartz said continued to have strong growth. That was due to increasing interest in Sun's Solaris and OpenSolaris operating systems, which in turn drive hardware sales.

"Niagra and our Open Storage products really represent the future of how our company is being rebuilt," Schwartz said.

Sun's revenue for fiscal 2008 increased just .1 percent, to $13.88 billion, over 2007's $13.87 billion. Net GAAP (Generally Accepted Accounting Practices) income was $403 million for the year, down from $473 million in 2007.

Sun spent $464 million to repurchase 35.7 million shares of its common stock in its fourth quarter, part of a $3 billion share repurchase program announced in fiscal 2007. The company said it will spend $36 million more to complete the program.

The IDG News Service is a Network World affiliate.