Sun sees recovery in tech spending

Jennifer Tan

SINGAPORE: Struggling network computer maker Sun Microsystems Inc said that it was seeing signs of a rebound in technology spending in the financial services and telecoms sectors, two industries key to the company.

Sun is the third-largest maker of powerful computers used to run networks and the Internet after International Business Machines Corp. and Hewlett-Packard Co Ltd. But it has lost ground to rivals recently, reporting a string of losses and falling revenue for 10 straight quarters.

"In the sectors that matter to us most, which is financial services and telecoms, we are seeing definite signs of increased spending," Robert Youngjohns, executive vice president of Sun's global sales operations, told Reuters.

"Financial services companies are starting to think longer term about their infrastructure needs, and that's good for Sun, while the telcos industries themselves are seeing growth."

Youngjohns was unsure if this upscale in corporate spending was sustainable in the months ahead.

"We would like to see six to 12 months of sustained improvement before we believe that the overall investment climate has improved -- there are too many false dawns in this business."

Last month, Sun posted a net loss for the first quarter ended September 28 that more than doubled from a year ago to $286 million or nine cents a share, as revenue slumped 7.7 percent to $2.54 billion.

"Looking forward, the pipelines of business look good -- we're seeing more project-based activity. We have to convince customers that Sun is the best platform for these projects."

LOSING GROUND

Sun has lost market share, restructured and laid off thousands of workers since the high-tech downturn began in 2000 with the bursting of the dot-com and telecoms sector bubbles, but faces growing pressure from investors and analysts to do more.

Youngjohns ruled out any radical restructuring, such as slashing its research and development budget.

"There's always room to fine tune the company and to make savings, but overall, we're happy with our strategy and we think it's the right one," he added.

He declined to forecast when Sun could return to year-over-year revenue growth.

The company has been hurt by corporations turning increasingly to systems that run on less expensive, standardized microchips from Intel Corp, rather than Sun's networks, which uses proprietary UltraSparc microprocessors and its Solaris version of the Unix operating system.

Those systems are sold by IBM, Dell Inc and HP.

Santa Clara, California-based Sun has also suffered from the rising popularity of the Linux operating system, which is based on open source code and is freely available to users, while developers can collaborate to refine its development.

Although the United States, which accounts for nearly half of Sun's business, remained in a slump, markets such as China, India and Thailand are performing well, Youngjohns said.

"Revenues in South Asia are getting back to the levels we saw during the height of the dotcom boom, and we're seeing the same thing in China," he said.

"The economies here are doing well, there are a lot of infrastructure projects and the telco industries are healthy."

Other bright spots are in Spain, Italy and Germany, he added.

Sun shares closed at $3.95 on Friday. The stock has gained 27 percent since the start of the year, but below the September 2000 high of more than $64.

Reuters