Sun Microsystems Posts Profit, but Sales Slip

Sun Microsystems Inc. posted a small profit for its fiscal second quarter Thursday, but year-over-year sales continued to slide as the server and software maker struggled to regain business it lost after the tech collapse in 2001.

Sun said it had made gains in several areas, including a positive cash flow from operations, improving profit margins and success in cutting costs. It also said customers were excited about its latest operating system, Solaris 10. And it has $7.5 billion in cash.

“Sun is kicking off the new year with the ship in good order,” Chief Executive Scott McNealy said.

For the three months ended Dec. 26, Sun earned $19 million, or 1 cent a share, contrasted with a loss of $125 million, or 4 cents, in the same period last year. Sales fell 1.6% to $2.84 billion from $2.89 billion. Sun has posted only two year-over-year quarterly sales gains in the last 15 quarters.

Excluding special items, Sun earned $28 million, or a penny a share, in the second quarter, contrasted with a loss of $99 million, or 3 cents, a year earlier.

Analysts had expected the Santa Clara, Calif.-based company to earn a penny a share on sales of $2.9 billion, according to a survey by Thomson First Call.

“We’re pleased with our progress this quarter toward achieving our key financial goals,” said Steve McGowan, Sun’s chief financial officer.

Sun has never recovered from the double hit of the dot-com implosion and the growing power of inexpensive hardware and software.

Sun shares dropped 3 cents on Thursday to $4.58 on Nasdaq. The financial results were released after regular trading. The shares fell 32 cents after hours.

Analysts were mixed about the company’s progress.

“We believe that evidence for Sun’s turnaround began to surface in the December 2003 quarter, and this evidence has steadily gotten stronger ever since,” Caris & Co. analyst Mark Stahlman said in a research report. “Progress on products, customer acceptance, internal restructuring and morale has been steady.”

For the first six months of fiscal 2005, Sun posted a loss of $128 million, or 4 cents a share, on sales of $5.47 billion, compared with a loss of $411 million, or 13 cents, on sales of $5.42 billion in the first half of fiscal 2004.