Sun posts break-even quarter

Sun Tuesday reported that it barely achieved profitability for a second straight quarter, ending a fiscal year that saw the company’s revenue drop 8.5% from fiscal 2002 to $11.4 billion.

“We certainly had our share of challenges throughout the year, but we finished in a strong financial position,” Sun Chief Financial Officer Steve McGowan said in a conference call after the earnings were announced.

Sun reported revenue of just under $3 billion for the fiscal fourth quarter, which ended June 30. When measured on a non-GAAP (generally accepted accounting principles) basis, Sun’s net income was $24 million or 1 cent per share. Wall Street had been expecting earnings of 2 cents per share, according to a poll of 20 analysts by Thomson First Call.

When measured on a GAAP basis, Sun’s net income was $12 million or $0 per share.

Revenue for the quarter was down 13% from last year’s fourth quarter, when Sun booked $3.4 billion in revenue.

Sun’s revenue for its 2002 fiscal year was $12.5 billion.

The company’s services and storage businesses performed well, according to Lehman Brothers Holdings financial analyst Dan Niles, but Sun’s server business continued to perform below expectations, he said.

“Sun’s in a very tough spot. They’re stuck between Intel taking share on the midrange and low end, and IBM on the high end,” Niles said. “Sun’s caught in a classic squeeze play between the two.”

The company’s server business has been having difficulties, in particular at the midrange of the market, where servers cost between $100,000 and $1 million, said IDC analyst Jean Bozman. Sun has been struggling, not because it is failing to sell servers, she said, but because prices have been dropping.

“What you see is average sales prices going down,” she said. “They’re still selling a lot of product.”

Sun’s server numbers were further hurt by delays in shipping the company’s SunFire V210 and V240 servers, which had been expected to ship in the fourth quarter, McGowan said. The delays cost sun about $50 million in business, he estimated.

The company’s server business earned $1 billion in revenue for the quarter, Sun said, up from just under $920 million in the same quarter of 2002.

“The good news is that they’re back to being sort of break even,” Lehman’s Niles said, but he questioned whether Sun’s revenue was enough to support its 35,000-strong employee base. “At a certain point, break even isn’t going to cut it. You need to either get the profitability up so you can support your employee base or you need to go through further restructuring,” he said.