Charges weigh down on Sun's revenue jump

Restructuring charges and other expenses drag Sun Microsystems into the red, but revenue beats estimates. Schwarz weighs in during Sun's earnings call

Stephen Shankland principal writer
Stephen Shankland has been a reporter at CNET since 1998 and writes about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
Expertise processors, semiconductors, web browsers, quantum computing, supercomputers, AI, 3D printing, drones, computer science, physics, programming, materials science, USB, UWB, Android, digital photography, science Credentials
  • I've been covering the technology industry for 24 years and was a science writer for five years before that. I've got deep expertise in microprocessors, digital photography, computer hardware and software, internet standards, web technology, and other dee
Stephen Shankland
3 min read
Restructuring charges helped push Sun Microsystems to a loss of $301 million in Jonathan Schwarz's first three months as CEO. But on the plus side, revenue and profitability beat financial estimates.

The $228 million restructuring charge, which funded 4,000 to 5,000 job cuts at the server and software company, was one of nine charges Sun laid out in its fiscal fourth-quarter earnings report Tuesday. Factoring those out, Sun would have had a net income of 4 cents per share for the quarter, which ended June 30. The $301 million loss equates to 9 cents per share. In the year-ago quarter, Sun had net income of $50 million, or 1 cent per share.

Including some of those items, analysts on average expected Sun to lose 3 cents per share, according to Thomson First Call. On that basis, Sun broke even, beating estimates by 3 cents per share, Chief Financial Officer Mike Lehman said.

Jonathan Schwartz Jonathan Schwartz

Sun's revenue increased 29 percent to $3.83 billion, surpassing the $3.6 billion that analysts expected on average.

The Santa Clara, Calif.-based company is struggling to recover some of the profitability, growth and influence it enjoyed in the dot-com era. Among key initiatives in the process are an expansion to x86 servers and a broad open-source software push that extends to the company's Solaris operating system and will extend to Java.

"We're making excellent progress returning Sun to growth and profitability. Revenue, bookings and backlog are all up substantially, indicating we're gaining traction, market confidence and share," Schwartz said in a statement.

Server growth
In a conference call, Schwartz pointed to revenue gains with the x86 servers, as well as with the low-end T1000 and T2000 servers using the UltraSparc T1 "Niagara" processor introduced at the end of 2005.

"The T1000 and T2000 exceeded $100 million for the first time in the (fiscal) fourth quarter. This is among the fastest product ramps we've ever seen," Schwartz said. And the x86 servers are at a $500 million annual run rate, implying that Sun garnered $125 million in the most recent quarter for them.

Related audio
Restructuring charges sting Sun
But in call with analysts,
CEO Schwartz is bullish
about revenue growth.

"We have a product line that allows us to go after our competitors and win," Schwartz said. When it saw strength in sales, the company, in some cases, chose to sacrifice profit margin to gain customers with a "willingness to throw price into the mix and win," he said.

The company's server shipments grew 14 percent to more than 100,000 units. The company's x86 servers grew faster, 53 percent, to nearly 30,000 units.

To encourage broad adoption of its products, Sun instituted a "try and buy" program that lets anyone try its low-end servers free for 60 days, with Sun paying shipping both ways.

"Of the systems we distribute, 60 percent went to customers who never have done business with Sun before," Schwartz said. "It is safe to say we have entered a new era, where we are attracting new customers."

The company generated $410 million in cash flow from operations, bringing cash and marketable securities to about $4.85 billion.

Sun also added 57,000 more subscriptions to its Java Enterprise System server software, making the cumulative total about 1.18 million, the company said.