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Sun's McNealy upbeat despite net loss of $125m

Sun Microsystems has reported a net loss of $125m for the second quarter of its 2004 financial year.

The loss came on revenue of $2.89bn for the quarter, compared with $2.92bn for the same period the previous year.

Sun's chairman, president and chief executive officer Scott McNealy said new initiatives, such as Sun's recent alliance with Advanced Micro Devices, have put Sun in a strong position to use "industry economics to deliver extreme performance at compelling price points" in 2004.

He referred to the quarter, which ended 23 December, as "a quarter of progress", despite the fact that revenue for Sun's product lines dropped from $2.01bn for the year-ago quarter to $1.94bn.

Revenue from Sun's storage division was down 4% to $376m.

However, Sun's services group continued to be a bright spot, reporting $944m in services revenue, up from $902m for the same quarter in 2002.

Sales of high-volume systems, such as the Sun Fire V series, were also positive. "We have, over the last couple of quarters, now seen some very nice unit volume growth," said McNealy.

Sun may have had success with servers like the Sun Fire V880, but the company is due for an update of its midrange and high-end systems, which have not been selling as well, said Illuminata analyst Gordon Haff. "There hasn't been much that has happened there from a product perspective."

Sun has now posted losses in 11 consecutive quarters. Its last profitable quarter was the third quarter of its 2001 financial year.

Haff said the pressure is on McNealy now to turn his company around.

"Spending is clearly on an upturn now. Hewlett-Packard is doing relatively well with their Enterprise Servers & Storage group. IBM is doing well. Dell has continued to do well," he added.

"Certainly within 2004, Sun needs to show substantial financial improvement over where they've been, or it is really incumbent on their board of directors to make some significant changes."

McNealy downplayed the idea that Sun is considering any radical changes.  "We are not changing our strategy in the go-to-market sense; we have a wonderful product calendar looking out over the next few years," he said.

Sun will cut 300 jobs by moving some of its server and storage manufacturing operations from California to Oregon.

When asked if Sun plans additional cuts in the year ahead, McNealy said the company is looking to add workers in areas where it thinks it can differentiate itself from competitors, while cutting back in other areas.

McNealy also discounted reports that Sun has been negotiating with Fujitsu to outsource the production of its UltraSparc processors and high-end servers. Fujitsu has been a long-time partner of Sun's in designing the Sparc specification that forms the basis of Sun's chips.

As Sun moves towards more complex chip architectures, keeping its chip expertise in-house "is going to become even more important"," McNealy said.

"At this stage there is no change," McNealy said of Sun's relationship with Fujitsu. "They continue to be a great partner and competitor and customer and supplier all wrapped into one relationship."

Robert McMillan writes for IDG News Service


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