Tech Industry

Sun misses analyst forecasts for revenue, earnings

CEO says economic downturn has weighed on Sun's customers and hurt its high-end businesses, but says the company will be able to weather a poor economy.

Updated at 3:10 p.m., with comments from the earnings call.

Sun Microsystems reported a 7 percent drop in first-quarter revenue on Thursday, coming in the midrange of its previously lowered earnings forecast.

The embattled hardware maker posted revenue of $2.99 billion for the quarter, a drop from its year-ago performance.

Sun also posted a net loss of $1.68 billion, or $2.24 a share, for the first quarter, compared with a net profit of $89 million, or 10 cents a share, a year ago. Excluding its restructuring charge and write-offs for the declining value of its goodwill, Sun posted a net loss of $65 million, or 9 cents a share.

Sun, which issued an earnings warning last week, missed analysts' revised revenue projections of $3.06 billion, according to Thomson Reuters. And the company also missed analysts' earnings expectations of a loss of 8 cents, coming in with a slightly larger loss than Wall Street expected of 9 cents a share.

"Although we saw another quarter of growth in our Solaris-based chip multi-threading and open storage systems, the economic downturn continued to weigh on our customers, especially those that contribute to our traditional high-end businesses," Jonathan Schwartz, Sun CEO, said in a statement.

He added, however, that given the company's strong cash position of $3.12 billion in marketable securities and cash, as well as cost controls and a market that is interested in open source, the company is positioned to weather the tough economic climate.

Sun, which released its results after the market's close, ended the regular trading session at $5.29 a share, up 9.5 percent. But in after-hours trading, its shares fell to $5.13 a share, down 3 percent.

During a conference call, Schwartz said some of Sun's traditional business lines bore the brunt of the pullback in orders, but as its newer lines performed well.

Midrange and high-end servers based on Sparc processors began to see softness starting back in the third quarter of the last fiscal year and fell 27 percent in the first quarter, compared to the same period a year ago.

But in comparison, Sun's Solaris-based chip multi-threading systems, which use Sun's "Niagara" processors, grew 83 percent in the quarter compared with last year.

"I talked to customers who are moving back to Solaris but not on our hardware," Schwartz said, noting he's pleased with the strategy Sun has been pursuing over the past several years where its customers can use its Solaris operating system and MySQL database on other vendors' hardware.

Sun continues to be exposed to the spending vagaries of the financial services sector. Schwartz said orders dropped from these customers.

"We're not naive enough to think that all we need to do is just spend more time with those customers," Schwartz said, adding that the company plans to spend more of its time with those existing Sun customers that are already running MySQL and trying to sell them more Sun software, services, and hardware.