Sun: Quarter going as expected

"Order rates are tracking to our internal expectations," Sun Chief Financial Officer Michael Lehman said during the company's midquarter conference call with analysts. "We are encouraged by this."

Analysts expect Sun to lose 4 cents per share on fiscal second-quarter revenue of $3.1 billion, according to earnings tracking firm First Call. The company earned 16 cents per share on sales of $5.1 billion in the comparable period a year earlier. Sun's second quarter ends in December.

Although company executives declined to predict a specific range for second-quarter revenue, Sun said it still expects sales to improve from the first quarter, when it reported $2.9 billion in revenue. The company also reiterated that it expects to be profitable by June, Lehman said.

Any prediction for the second quarter based on progress at the midpoint isn't a sure thing, SoundView Technology Group analyst Mark Specker wrote in a research note previewing Sun's report this week. Sticking with current expectations is "a chance" because Sun usually gets 60 percent of its second-quarter revenue in December, Specker said.

SoundView's research indicates that Sun may have seen some strength in October and November, but that could be fueled by sales delayed from September, rather than from entirely new orders, Specker said.

"In aggregate, most contacts relayed a rather somber view of demand in the quarter," Specker wrote. "Our checks gave us little indication that U.S. demand has improved as markedly as has been rumored."

Goldman Sachs analyst Laura Conigliaro had a more optimistic outlook, based on recent meetings with Sun executives.

"It sounds as if business is improving in the U.S. and stabilizing in other major geographies," Conigliaro wrote this week.

The U.S. recession notwithstanding, Sun's newest products such as its Starcat high-end server as well as several new midrange products powered by the latest UltraSPARC III chip have the company well-positioned to gain market share, said Ed Zander, Sun's chief operating officer. "Our company is a lot stronger than it was in December of 2000," Zander told analysts.

Some market research surveys have indicated IBM took market share from Sun this year. However, despite new, cheaper IBM servers such as the Regatta, Zander said Sun's pitch of a single, unified operating system for all its servers will appeal to customers. IBM--which Sun clearly sees as its main competitor in the high-end and midrange server market--has too many separate operating systems between its mainframe, AS/400, Unix and Linux computers, Zander argued.