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Slower sales dim Sun

Sun Microsystems missed analysts' first-quarter estimates due to slower-than-anticipated sales to OEMs and from its technology business.

Sun Microsystems (SUNW) today missed analysts' first-quarter estimates due to slower-than-anticipated sales to original equipment manufacturers (OEMs)and from its technology business.

"Our first quarter traditionally has 55 to 61 percent of the orders come in Sun at a glance during the third month, but we didn?t see that push in the last couple weeks of quarter," said Michael Lehman, Sun?s chief financial officer, noting that the company's systems and services business was able to avoid having a similar problem.

Lehman also cited currency problems overseas as a factor in Sun's weak results. He noted that the strong U.S. dollar created a devaluation of currency in Southeast Asia, which reduced consumer buying.

Sun Microsystems reported net income of $108.4 million, or 27 cents a share, for the quarter ending September 28, compared with profits of $367.3 million, or 32 cents, a year ago.

Excluding charges of $72.1 million for acquisitions and income tax provisions, the workstation company would have posted profits of $163.2 million, or 41 cents a share. That still missed analysts' estimates of 44 cents a share, according to First Call.

Revenues, meanwhile, reached $2 billion for the quarter, up from $1.86 billion a year ago.

Lehman said in a conference call to analysts that revenues were not as strong as the company had anticipated, but that they were close to the company's target.

Analysts, meanwhile, said Sun?s server business has remained strong despite setbacks.

"They continue to do well in the server business and continue to have enterprise wins and take market share away from Hewlett-Packard (HWP) and IBM (IBM) for Unix sales," said C.B. Lee, an analyst with Sutro & Co.

He added that the company?s Enterprise 450 workgroup systems are aggressively priced and seem to be moving well.

"Things continue to look pretty good for their workstations and storage products, which have done well and continued to do well," said Wendy Abramowitz, an analyst for Argus Research.

But Lee said the second quarter may encounter some "softness" in sales, as


Sun CFO Michael Lehman on soft sales
the backlog in the channel grows. He explained that the company?s three consecutive quarters of revenue growth may point to an increasing buildup of products in the channel.

In the long-term, however, Lee said Sun is well-positioned to be the remaining alternative for Unix, as Hewlett-Packard recently has signaled its intent to move to Windows NT. In the next two years or so, IBM may emphasize NT as well.

As for Sun?s Java, last year's sales doubled from the previous year, to $160 million. But those revenues comprise a drop in the bucket to the company?s total revenues of $8.6 billion last year.

"It?s too early to tell where this thing with Java will go," Lee said. "This will be a long tussle with Microsoft and the rest of the industry."