Sun shows profit in preliminary earnings report

Sun Microsystems Inc. on Tuesday reported a profit of US$795 million or $0.24 per share in the fourth quarter, compared with a...

Sun Microsystems has reported a profit of $795m (£432m) in the fourth quarter, compared with a loss of $1.039bn in the same quarter of last year.

Total revenue for the quarter, which ended 30 June, was $3.11bn, up 4.3% from the year-earlier quarter, Sun said.

Sun's profits were buoyed by almost $2bn it received as part of its legal settlement with Microsoft earlier in the quarter. Discounting the Microsoft money, Sun reported a net loss of $169m.

Sun's revenues were driven by strength in its traditional markets, including the communications and financial services industries, and by the ramp-up of systems based on Sun's UltraSparc IV processor, which now account for 30% of the company's server revenue, said Stephen McGowan, Sun's chief financial officer.

UltraSparc sales should account for half of server revenues in the quarter ahead, he said.

Though sales of Sun systems based on Intel and Advanced Micro Devices' x86 processors were "still not a material revenue figure", according to McGowan, Sun's server sales volume grew significantly.

"Our server systems unit volume increased 46% in the fourth quarter on a year-on-year basis," McGowan said. "We view this volume growth as a leading business indicator."

Revenue for the company's services division was slightly above $1bn, up from the $940m it reported in the third quarter.

Sun also saw growth in the number of subscribers to its Java Enterprise System suite of middleware. There are 303,000 subscribers to the system, which has a list price of $100 per user per month. This was up 75% from 174,000 total subscribers during the previous quarter, Sun said.

The company's results include $1.6bn of other income, and $350m in deferred other income related to Sun's settlement with Microsoft, the company said.

Sun is waiting for the US Securities and Exchange Commission to confirm its accounting for that settlement. Until then, the financial results are preliminary figures, the company said.

The company has also announced management changes. Robert Youngjohns, the former executive vice-president of Sun's global sales organisation, will become executive vice-president, strategic development and Sun Financing. Youngjohns is replaced by Robert MacRitchie, who will serve as the acting head of the company's sales organisation.

Youngjohns' group will be a new division within Sun, and in addition to providing financing services for Sun's customers, will also pursue a number of acquisitions.

The company will also continue its downsizing over the next quarter with the final 900 of a planned 3,300 job cuts expected to be announced over the next three months, according to McGowan.

The company's research and development (R&D) efforts, which cost nearly $2bn during the company's most recent financial year, will be affected by the downsizing.

But Sun declined to say how much it was cutting specifically from R&D, McGowan said the company would reduce the amount spent on R&D, selling, general and administrative expenses by $500m during the year ahead.

Robert McMillan writes for IDG News Services

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