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Sun posts profit but will cut jobs

Earnings slip compared with last year, but the company beat expectations. "I thought the numbers were good," one analyst says.

Sun Microsystems saw its quarterly net income fall 85 percent from a year ago, when results were boosted by its legal settlement with Microsoft, but results were better than expected, and it set plans to cut its work force by 3 percent.

Shares of Sun rose 3.6 percent in after-hours trade on the earnings news, released Tuesday. The move to slash 1,000 jobs is expected to result in a charge of about $100 million over the next four quarters.

Sun, hit harder than rivals IBM, Hewlett-Packard and Dell since the dot-com bust in 2000, has been trying to return to sustained profitability by bundling its servers, software, data storage and computer services and selling them on a subscription basis.

Sun Microsystems posted net income for its fourth fiscal quarter ended June 30 of $121 million, or 4 cents a share, down from $783 million, or 23 cents a share, a year ago. Excluding the year-ago settlement gain, Sun had a loss of 5 cents.

Analysts expected Sun to earn 1 cent a share, on average, within a range of a loss of 1 cent to a profit of 4 cents, on revenue of $2.98 billion, according to Reuters Estimates.

Last year Sun received a settlement from its long-standing legal battle with Microsoft. Sun sued Microsoft for antitrust issues.

"Given the company is still in the midst of a transition and turnaround, I thought the numbers were good," said Brent Bracelin, an analyst at Pacific Crest Securities. "This is a company where I think expectations were very low, and Sun did a little bit better than what people were thinking."

Sun also now sells a broad range of servers that use Advanced Micro Devices' Opteron microprocessor, sales of which Sun said more than doubled in fiscal 2005.

Sun said the latest quarter included a tax benefit of $190 million. Excluding items, Sun had a profit of 6 cents per share, according to Reuters Estimates. As is typical with Sun, it did not give a revenue or earnings forecast for the current fiscal first quarter of 2006.

"It sure feels nice to make money--that always feels good," said Scott McNealy, Sun's chief executive, on a conference call with analysts. "We spent the last year getting in shape and succeeding on a lot of front(s) and setting the company up for a really successful '06."

Yet revenue in the latest fourth quarter fell to $2.98 billion from $3.11 billion a year ago, the third consecutive year-over-year decline.

On a conference call with analysts, McNealy said that the company had a "nice start" to its fiscal 2006, with solid bookings in the just-reported quarter and an increase in deferred revenue.

"We are planning and goaling our team on growth and profitability," for fiscal 2006, NcNealy said.

Sun's President and Chief Operating Officer Jonathan Schwartz also said that General Motors will roll out Sun's Java Enterprise System (JES) software across its technology infrastructure, the biggest win yet for JES.

In extended trading on the Inet electronic brokerage system, shares of Sun, which employs about 31,000 people, ticked higher to $3.99. Based on Monday's closing price, the stock has declined 29 percent so far this year, compared with a 7 percent decline in the American Stock Exchange Computer Hardware Index.

Story Copyright © 2005 Reuters Limited. All rights reserved.