Sun Microsystems announced it expects to report a financial loss in the current second consecutive quarter, due to slow demand for servers in Europe and Asia.  Though Sun has avoided massive lay off, without an upturn in sight such a drastic action may be inevitable to keep expenses in line with revenues.

"I think it's a real stretch to hit the $3.7 billion number," said Mike Lehman, Sun's chief financial officer referring to an earlier announced sales target, adding that the firm's break-even level is just below $3.7 billion.   

Last quarter, Sun's revenues fell 20 per cent, resulting in the company's first net loss since going public in 1989. Lehman declined to comment about possible layoffs saying that would be counter-productive to the people working at Sun and to the company's customers. "It will take a very large month of September in terms of demand for us to hit the break even point. At this stage I would not count on that happening," Lehman said.

Weakness was concentrated in Japan and Europe, with demand in the United States only "a touch behind" forecasts, although Sun had expected U.S. sales to fall in the first quarter from the fourth, he said. The new forecast was below Wall Street expectations compiled by Thomson Financial/First Call of first quarter revenue of $3.8 billion. On average Wall Street had expected 2 cents earnings per share, with forecasts ranging from a loss of 2 cents to a profit of 4 cents.

With competition building up, Sun is seeing the first big rival in IBM’s Linux-driven system. IBM announced a major coup this week with the New York Stock Exchange moving their e-mail systems to IBM Linux servers that will replace about 180 Sun servers.

Merrill cuts Sun’s outlook
According to Reuters, joining Goldman Sachs a day earlier, Merrill Lynch on Wednesday, citing anemic demand, said it cut its 2002 outlook for Sun Microsystems. Analyst Thomas Kraemer lowered his estimates for the fiscal first quarter to a loss of 2 cents from a profit of 1 cent, with revenues targeted at $3.6 billion instead of $3.7 billion.

For the second quarter, Kraemer cut his view to earnings of 3 cents from 8 cents previously. He also reduced his fiscal 2002 estimate to 27 cents from 38 cents a share, on revenues of $18.3 billion, down from $18.8 billion. Kraemer said in a research note the current estimates assume some recovery in the December quarter with "meaningful economic improvement following that," he said.