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Sun posts Q3 net loss of $760 m

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CIOL Bureau
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Duncan Martell



SAN FRANCISCO: Sun Microsystems Inc. shuffled the top executives at its core server computer business and posted a large loss, weighed down by a hefty restructuring charge as revenue fell for the 12th consecutive quarter.



The loss was in line with a reduced forecast Sun issued on April 2, and its shares fell slightly in after-hours trade. Sun is also laying off 3,300 workers, or about 9 percent of its workforce, to bring costs in line with lower revenues.



Santa Clara, California-based Sun reported a net loss of $760 million, or 23 cents a share, for the fiscal third quarter ended March 28, compared with a year-ago profit of $4 million, or nil cents a share. Revenue fell 5 percent to $2.65 billion from $2.79 billion, on lower sales of servers and data storage products.



The latest restructuring by Sun, which two weeks ago settled all litigation with its bitter rival Microsoft Corp., aims at its hardware units, the heart of its business. Two executives -- Mark Tolliver, chief marketing and strategy officer, and Neil Knox, who runs the low-end server business -- will leave the company, the latest in a string of departures since Sun fell on hard times.



"We're obviously listening to the marketplace, our customers and, most importantly to our stockholders, who want to see evidence of substantive change to reinvigorate Sun Microsystems," President and Chief Operating Officer, Jonathan Schwartz told Reuters. Schwartz was named to those posts by CEO Scott McNealy on April 2.



Clark Masters, who ran the high-end server group, will leave that post but is considering other options within the company, Schwartz said on a conference call.



In 2002, former President and Chief Executive Ed Zander was the first of many long-time, key Sun executives to leave. Also that year, Chief Financial Officer Mike Lehman and John Shoemaker, who headed servers and processors, retired. Last September, legendary chief scientist and Sun co-founder Bill Joy departed the company.



Sun has been pressured the last three years by the rising popularity of Linux, the freely available operating system software, and the move to servers running Intel Corp.-compatible chips and Microsoft's operating system software.



"They still have a ways to go to get back out of the woods," said Thomas Murphy, an analyst with industry research firm Meta Group. >



By contrast, rival IBM said its net income rose for a fifth consecutive quarter as corporations continued to boost spending on information technology such as hardware, software and computer services.



In terms of the reorganization, Sun said its Sparc microprocessor, enterprise systems and Sparc-based server business will be part of a new group called the Throughput Systems organization, led by David Yen, effective immediately.



Its Intel- and AMD-based servers will be grouped in a new division to be called the Network Systems organization and will be run by John Fowler, who will also be lead technology officer for Schwartz.



Excluding charges and a gain, Sun had a loss of $260 million, or 8 cents a share. On that basis, analysts' reduced estimates called for a loss of 7 cents a share on revenue of $2.66 billion, according to Reuters Research, a unit of Reuters Group Plc.



A raft of new products expected to ship in volume in the coming months will be key for Sun.



"The next couple of quarters are going to be the real test for them," Murphy said, pointing to Sun's investments in the next version of its Solaris operating system, and in its Sparc processors and server products, as well as servers using Advanced Micro Devices Inc.'s Opteron processors.



Before the results announcement, Sun shares fell 14 cents, or about 3 percent, to close at $4.42 on Nasdaq. In after-hours trading they eased to $4.34. Sun stock has declined 1.1 percent so far this year, compared with a 1.4 percent gain in IBM and a 22 percent gain in the American Stock Exchange Computer Hardware Index.



© Reuters

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