Sun Micro posts loss, forecast fuzzy but us sales up

Peter Henderson

SAN FRANCISCO: Network computer maker Sun Microsystems Inc. on Thursday

reported its first quarterly net loss since 1989 and said the economy was too

unstable to make a precise prediction for the current quarter.

But the company met its own lowered operating profit target for the fiscal

fourth quarter and showed a $200 million uptick in US sales from three months

earlier, sparking muted optimism. Officials said that after revising financial

targets two quarters running, they had decided not to say more than that Sun

would post an operating profit in the current period.

"Twice bitten, once shy," chief financial officer Michael Lehman

told Reuters in an interview. "We'll give people a better sense when we've

got about a month to go" in the quarter. Sun posted a fourth-quarter net

loss of $88 million, or a loss of 3 cents per share, compared with earnings of

$720 million, or 21 cents per share, a year earlier.

That was the first net loss since the fiscal fourth quarter of 1989. Sun was

pushed into the red by charges including a $78 million loss on investments and

$161 million of amortization related to past acquisitions.

Pro forma earnings, the operating profit which excludes such charges, dropped

to $134 million, or 4 cents per diluted share, from $659.5 million, or 21 cents

per share, a year earlier and $263 million, or 8 cents a share, a quarter ago.

Sales dropped to $4 billion in the quarter to end-June from $5.02 billion a

year earlier and $4.10 billion in the third quarter. The results met targets Sun

lowered in May, and Goldman Sachs analyst Laura Conigliaro said they were

relatively positive given low expectations.

"The US, granted off a very low base, is at least showing some signs of

life," she said. Sun also had shown sense in not being too precise on the

outlook. "I think it is the mark of a company that is trying to be

realistic and honest and also not have to eat words."

Sun is not alone - storage company EMC Corp. and computer giant International

Business Machines Corp. both avoided specific forecasts for the current quarter

after reporting earnings earlier this week.

"Sun is doing better than expected, though the next two quarters will be

tough," commented John Rutledge, portfolio manager of the $25 million

Evergreen Technology Fund, which sold Sun stock near its height last fall.

"We like Sun longer term, but believe that it is probably too early to be

aggressive with the stock right now," he said.

Sun reported its earnings after the end of the regular trading session on the

Nasdaq. Its shares rose slightly after hours to $14.56 on Instinet from $14.44

at the close.

Its shares have fallen 44 per cent this year, and since their height of more

than $63 in August they are down around 77 per cent, underperforming the

Standard & Poor's 500 index by more than 70 per cent.

'Nobody knows' about the economy



"I'm a trained economist. Nobody knows what is going on with the US
economy," Chief Executive Scott McNealy said, fending off analysts asking

for details in a conference call. Lehman said he would give a clearer target

range in the next mid-quarter conference call at the end of August.

However, Sun would sell more than the $3.7 billion needed to make an

operating profit in the current first quarter, he said, adding that the

quarter's results would mostly be determined by economic and other factors

beyond Sun's control.

"They did superb. The balance sheet looked good, expenses looked

good," said Andy Neff, an analyst at Bear Stearns who said Sun had implied

revenues for the first fiscal quarter would be $3.7 billion to $3.9 billion in

the quarter.

Fourth-quarter sales in the United States were up from the previous quarter

by about $200 million, and in Europe were down about the same amount, while

sales to Japan were off about $140 million, reflecting a seasonal trend there,

Lehman said.

Lehman said he expected a seasonal pause this quarter in Europe, which is

often slow at the end of the summer, that could be exacerbated by the economic

problems. "Some of that may be offset by the relative stability we

experienced in the US market and by other geographies," he told the

conference call.

Executives repeatedly declined to give forecast details and also were

cautious on some of their own plans, in particular declining to respond to

questions on storage partnerships, which referred to expectations that Sun and

storage firm Hitachi Data Systems may announce some deal.

And typically, Sun said it was gaining share from rivals and put down current

and future products from IBM, which has been doing well with its new servers.

McNealy also said he expected another threat, Microsoft Corp.'s decision not to

support Sun's Java technology for running Internet applications, would probably

be solved in part by PC makers adding the necessary program.

(C) Reuters Limited 2001.