Sun Turns Profit, but Sales Fall 10%
Sun Microsystems Inc. eked out its first profit in nine months, but sales fell 10% as big customers delayed buying big computers or turned to competitors including IBM Corp., Hewlett- Packard Co. and Dell Computer Corp.
The Santa Clara, Calif.-based maker of server computers and workstations said Wednesday that fiscal third-quarter profit was $4 million, or break-even on a per-share basis after taking into account preferred dividends. A year earlier, Sun posted a loss of $37 million, or 1 cent a share. Sales fell to $2.8 billion from $3.1 billion. Sales have fallen from the year-earlier period for eight quarters.
Sun shares fell 3 cents to $3.32 on Nasdaq before the announcement, then dropped to $3.24 in extended trading.
Chief Executive Scott McNealy said the company was “holding our own” in the market for servers using Unix operating systems, where Sun has long had a major presence. But he told investors and analysts, “I wish we were gaining share like we were a few years ago.”
In 2002, Sun’s share of the server market dropped by three-tenths of a percentage point to 15.1% as the overall market fell 8%, according to research firm Gartner Inc. Dell gained, by 1 percentage point, the only firm among the top four to do so.
Sun has been diversifying by making its software available for computers that it doesn’t manufacture and by building its services offerings.
In the three months ended March 30, Sun fared worst in Japan, where sales fell 13%.
Besides a slight profit, Sun highlighted its increased gross profit margins, which were due in part to lower component costs. General expenses also fell as the company cut jobs.
Sun executives said sales would increase in the fourth quarter compared with the third quarter, as it usually does. They gave few other predictions but said Sun was doing better than a year ago in selling to U.S. government agencies and was benefiting from renewed investment by telecommunications firms.
Asked by an analyst whether a high-margin, low-volume business model was leaving Sun open to further attacks by rivals with lower costs, McNealy said it would continue to invest in order to distinguish its products.
“We could obviously get to 10% to 20% pretax [profit] in a heartbeat just by cutting investments in the future,” McNealy said. “We don’t think that’s the right thing to do.”
