Sun Micro Q2 sales to meet forecast

SAN FRANCISCO: Sun Microsystems Inc. said its revenue for the December quarter will be in line with current analyst forecasts of $2.92 billion as the computer maker grapples with competitive pricing by its rivals. Revenue of that amount would be an increase of almost 6 percent from the $2.7 billion that Sun Microsystems recorded in its fiscal first quarter ended in September. That increase is in line with seasonal trends, Chief Financial Officer Steve McGowan said on a conference call to issue a mid-quarter update.

Shares of Sun inched up to $3.80 in after-hours trade, after closing down 4 cents at $3.76 in regular Nasdaq trade. The stock is off 69 percent so far this year. The maker of computers that manage networks still expects to return to profitability sometime in the second half of its fiscal year ending June 30, 2003, McGowan said. Sun returned to a profit in its fiscal 2002 fourth quarter after three consecutive quarters of losses. It slipped again to a loss in its fiscal first quarter.

When Sun most recently reported results in October, it declined to describe its expectations for the current, second quarter. Sun and other computer makers have seen revenue and profits decline amid the technology downturn that began at the end of 2000.

"It's a very competitive environment for us to be selling into," McGowan said. But he said that spending on computer services and computer-related equipment wasn't getting any worse, a slight improvement from the industry outlook Sun gave in October when it reported first-quarter results. At that time, the company said demand wasn't improving and might actually even be worsening.

Sun has been facing pressure from rivals, particularly on the low-end of servers that help power computer networks from International Business Machines Corp., Hewlett-Packard Co. and Dell Computer Corp., analysts have said. Purchases of million-dollar computer servers for which Sun is known have also slowed markedly as companies cut back sharply on their technology spending.

Asked to address Sun's bottom-line results, McGowan declined to comment on his expectations for results per share relative to analyst expectations of a loss of 3 cents a share before items, according to Thomson First Call. McGowan also said that pricing remained competitive, which he said will cause its gross margin to narrow "slightly" from its gross margin in the first quarter. Sun's gross margin in its first quarter was 41.2 percent.

The company has largely completed its job reductions, of 4,400 company-wide announced last month, in the United States, McGowan said. The majority of the job cuts outside of the United States will be completed by the end of the third quarter, he said. The cuts of 4,400, in addition to 3,900 announced a year ago, will amount to a 20 percent reduction in its work force since the technology slowdown began.

© Reuters