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Follow UsLOS ANGELES: Sun Microsystems Inc. has reported its largest net loss ever, taking more than $2 billion in acquisition-related charges, but squeezed out a small operating profit thanks to stronger pricing and lower component costs than expected.
Santa Clara, California-based Sun, which makes computers that manage networks, failed to reiterate a target set in November of turning a profit by the end of the company's fiscal year in June, saying the economy was too murky. CFO Steve McGowan also said he would stop giving mid-quarter updates and declined to comment on clients' spending plans for the same reason
Investors also focused on a bigger question -- whether Sun's developing technology to easily manage networks could fend off incursions by PC technology makers Microsoft Corp. and Intel Corp., which are moving into the high-end computing space where Sun is strong.
"Not only are (Sun) pressured to report good results on a quarterly basis, but their long-term standing in the IT (information technology) market is being called into question," said Marty Shagrin, an analyst at Victory Capital, which has some Sun stock.
"We are in the camp of saying that if the shift happens, it will take longer than most people think." Microsoft comments on its earnings call that technology spending was unlikely to recover soon -- and its argument that high-end markets feel the spending pinch most -- had hurt Sun, Shagrin said.
Sun shares fell in after hours trading to $3.49 on Instinet. They had closed down 4.39 percent, or 17 cents, to $3.70 on Nasdaq before the results were announced. Sun reported a net loss of $2.28 billion, or 72 cents a share, in its fiscal second quarter ended December 29, versus a year-ago net loss of $431 million, or 13 cents a share.
Revenue was $2.92 billion after $3.11 billion in the year-ago quarter.
Surprise operating profit
Excluding one-time items, Sun reported a profit of $10 million, or nil cents a share. Analysts polled by Wall Street tracking firm Thomson First Call had forecast Sun would post a loss of 2 cents per share on revenue of $2.91 billion.
The one-time items in part were a $2.1 billion non-cash charge for acquisition-related write-offs, $357 million in expenses related to job cuts and restructuring costs and $204 million in tax benefits.
CFO McGowan described in a conference call various factors affecting March quarter results, from beneficial accounting issues to a pay raise and higher component prices the company. But he gave no earnings or profit margin forecast and said he would not provide a mid-quarter update, breaking from the computer maker's recent practice. Analyst Richard Chu of SG Cowen said Sun's guidance had not been precise of late, anyway. "By no means should the uncertainty equate to a black hole," he said.
He said he was still neutral on the stock after listening to executives in a conference call and that he did not expect Wall Street estimates for the year to change much. First Call puts the third-quarter consensus at a 1-cent-per-share loss on revenue of $2.98 billion.
Sun's first-quarter gross profit margin, a reflection of unit pricing that is closely watched by investors, rose by 2.1 percentage points from the previous quarter, to 43.3 percent from 41.2 percent. McGowan said that better pricing and a mix of sales weighted toward its most expensive computers, as well as lower component costs, accounted for the bulk of the improvement.
Shares of Sun, which rode the Internet wave by supplying computers to dot-coms in boom years and then suffered in the bust, fell 75 percent last year, more than double the 36 percent fall of bigger and more diversified rival IBM. Both have shown double-digit improvement so far this year.
© Reuters