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Sun Microsystems checks in with another dazzling quarter

Sun Microsystems had no trouble topping analysts' estimates in its third quarter Thursday, posting a profit of $436.2 million, or 26 cents a share, on record sales of $4 billion.

First Call consensus expected it to earn 23 cents a share in the quarter.

Ahead of the earnings report, Sun (Nasdaq: SUNW) shares closed off 2 1/4 to 77 3/4.

"This was a blowout quarter," said Michael Lehman, Sun CFO, on a conference call with analysts. "No single quarter has been as satisfying as this."

Lehman said Sun would have some tough comparisons in upcoming quarters, but projected revenue growth of at least 25 percent in the next fiscal year. Earnings will be on par with revenue growth, or slightly below it. Lehman said Sun was investing in the business and growing market share.

The $4 billion in sales marks a 35 percent jump from the year-ago quarter when it earned $292 million, or 18 cents a share, on sales of $2.95 billion.

Including a variety of special items and acquisition charges, Sun pocketed $508.1 million, or 30 cents a share, in the quarter.

CEO Scott McNealy said the company "kicked some major bottom out there."

McNealy said the business accelerated during the so called 'Y2K lockdown' in the second quarter to boost market share.

On the conference call, officials moved to dispel rumors about product delays. Merrill Lynch analyst Steve Milunovich said there were concerns about product delays in his earnings preview.

Ed Zander, operating chief for Sun, said the company’s products are on track, and customers aren't concerned about the product road map because demand remains strong.

"We clearly took market share from Hewlett-Packard (NYSE: HWP) and IBM (NYSE: IBM)," said Zander, who said Sun executed better against IBM. As for H-P, Zander said the company had "the best quarter vs. H-P in some time."

In February, company officials gave Wall Street a sneak preview of what to expect in the third quarter and fiscal year, predicting a sales improvement of 25 percent.

Looking forward, McNealy said the company planned to become even more efficient, invest heavily in research and development and use its strong stock price for "real, live, revenue generating acquisitions."

While more than half of Sun's total sales are derived from U.S. customers, it has steadily improved its international business.

In the past five years, Sun's sales into Europe have remained steady at around 28 percent while sales to Japan have slipped from 13 percent to 9 percent. U.S. customers accounted for 51 percent of sales so far this year.

Last quarter, Sun pocketed $253 million, or 21 cents a share, on sales of $3.55 billion.

Its shares moved up to a 52-week high of 106 3/4 in March after falling to a low of 24 7/8 last April. It also had a 2-for-1 split in December.

Twenty-one of the 22 analysts following the stock rate it either a "buy" or "strong buy."

First Call consensus expects Sun to post a profit of 91 cents a share in the fiscal year.