Sun returns to loss, cuts jobs

By Peter Henderson

SAN FRANCISCO: Computer maker Sun Microsystems Inc. announced its second major round of layoffs since the technology slowdown began and posted a loss, reversing its return to profit after a single quarter. The maker of computers that manage networks said it expected to return to profit in the second half of its fiscal year, which ends next June, but executives declined to describe their expectations for the current quarter, after business unexpectedly failed to improve in September.

"I'm so out of the forecasting game it doesn't even make sense," said Chief Executive Scott McNealy on a subdued conference call with investors. Sun said it would cut 11 percent of its work force, or about 4,400 of the 39,400 workers it had at the beginning of July, and take a $300 million charge in the December-ending second quarter for job and real estate cuts.

Shares of Sun rose in after-hours trade on Instinet to $3.14 from a close of $2.99 on the Nasdaq, where they gained 6.8 percent in regular trade. Santa Clara, California-based Sun reported a net loss of $111 million or 4 cents per share in its fiscal first quarter ended in September, compared with a loss of $180 million or 6 cents per share in the year-ago quarter.

Excluding one-time items, Sun reported a loss of 2 cents per share, beating most Wall Street forecasts tallied by Thomson First Call of a loss of 2 cents to 5 cents per share, and a consensus outlook of a 4-cent loss.

Revenue was lighter than the $2.87 billion analyst consensus, falling to $2.7 billion from $2.9 billion. Bear Stearns analyst Andrew Neff said it was not clear if the new job cuts, long expected by Wall Street and some analysts who had criticized Sun for delaying such a move during the downturn, would be enough.

"The key for us is what will spark revenue growth for Sun in a highly competitive environment," he said. A spokeswoman said the company would make the majority of the cuts by the end of the calendar year. Sun announced in October 2001 its first major layoffs, a 9 percent cut in the work force that amounted to nearly 4,000 jobs, and Sun said it had now cut about 20 percent of the work force since the downturn began about two years ago.

Sun posted its first profit in a year in its June-ending fiscal fourth quarter, but it had signaled three months ago that it would return to a loss due to the slow market for computers amid sparse corporate spending for information technology and tough competition among rival vendors.

Sun shot to prominence by supplying many of the dot-com start-ups with computers to help expand the Internet in the 1990s, but its sales and earnings were shocked by the implosion of IT spending by enterprise customers, which it has worked hard to replace.

But Chief Financial Officer Steve McGowan said sales were unexpectedly slow at the end of the quarter, in September, especially in the United States. "We did not have the expected quarter-end uptick in business," he said on the conference call.

The company is also facing technological challenges, such as rising competition from Microsoft Corp.'s Windows and the freely developed Linux operating environments. Sun has embraced Linux, although many analysts still question its commitment and the financial consequences.

Shares of Sun have fallen about 75 percent this year, compared with a roughly 40 percent fall by the American Stock Exchange Computer Hardware index.

(Additional reporting by Caroline Humer in New York)

© Reuters