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Sun posts predicted loss

The company reports a quarterly loss that matches the server maker's warnings but edges ahead of analyst expectations.

Sun Microsystems reported a quarterly loss that matched the server maker's warnings but edged ahead of analyst expectations.

The Palo Alto, Calif., company had a loss of $158 million, or 5 cents a share, excluding one-time items, on revenue of $2.86 billion. That's a 43 percent decrease from the $5.05 billion in revenue the company reported in the year-ago quarter.

Two weeks ago, Sun warned its revenue would fall below analyst expectations, with a loss of 5 to 7 cents a share on revenue of $2.7 billion to $2.9 billion. The company also announced it would lay off of about 3,900 employees, or 9 percent of its work force.

Analysts polled by First Call had expected a loss of 6 cents a share. Before the warning, the analysts had predicted a loss of 4 cents per share.

Sun's business, already hurt by the economic downturn and drastically curtailed spending on Internet initiatives, nearly vanished in the wake of the terror attacks on Sept. 11. "Our business nearly (ground) to a halt," Chief Financial Officer Mike Lehman said during the warning announcement.

Sun Chief Executive Scott McNealy defended the company's strategy Thursday. "The current economic environment is very difficult, but the strength of Sun's vision and strategy create a competitive advantage," he said in a statement.

Special charges in the quarter, which ended Sept. 30, included a $19 million loss on strategic investments, a $3 million charge for research and development and a $14 million loss for moving out of real estate. The charges were offset by a $14 million decrease in taxes, the company said.

Including the special charges, the company's net loss was $180 million, or 6 cents per share.

Goldman Sachs analyst Laura Conigliaro said in a report that she expects further layoffs.

Though Sun has received some big contracts recently, it faces reinvigorated competition from IBM, whose new top-end Regatta server competes against Sun's new Starcat machine.

And IBM, with choice old-economy customers, poses a stronger threat than ever to Sun.

UBS Warburg analyst Don Young said IBM's Unix server revenue dropped 9 percent in its most recent quarter, but he attributed the drop to customers awaiting the new Regatta system. Revenue from mainframe systems, meanwhile, increased 30 percent, he said.