Tech Industry

Sun profits, revenues up

Sun Microsystems posts a jump in third-quarter profits and a 12 percent increase in revenues, fueled by sales of its new low-end workstations.

Sun Microsystems today posted a jump in third-quarter profits and a 12 percent increase in revenues, fueled by sales of its new low-end workstations.

The workstation maker reported profits of $232 million, or 59 cents a share, for the period ending March 29, compared with $224 million, or 58 cents a share, reported for the same quarter a year ago. Last year's third-quarter results also included a one-time gain.

Sun slightly beat the consensus of analysts' estimates, which predicted profits of 58 cents a share, according to First Call.

Sun's share price has been on a downward slope since early February, when it traded around the 50 range, but its revenues for the latest quarter reached $2.4 billion, up from $2.1 billion a year ago.

Unlike the previous quarter, which largely had no new products shipping into the channel, the third quarter Sun at a glance had the benefit of Sun's new low-end Darwin graphics workstations--the Ultra 5, 10, and 60. The Darwin and its adoption of a PC-like architecture, which reduces costs, is expected to slow the advance of NT against Sun's Unix offerings. Darwin began shipping at the end of the second quarter.

Economic problems in Asia and a strong fourth quarter last year will make revenue growth in the current quarter on par with year-ago comparisons, said Michael Lehman, the company's chief financial officer.

Sun said, however, that the economic turmoil in Southeast Asia, Japan, and Korea, regions that contribute between 12 percent and 15 percent of the company's total revenues, has hurt its financial results. Southeast Asia revenues declined by 20 percent over year-ago figures, while Korea declined by 50 percent.

"We would not expect revenue growth in the fourth quarter to be higher than what we saw in third quarter in percentage growth," Lehman said. He added that, while fourth-quarter revenues will not exceed 12 percent over year-ago figures, the company plans to assess its business plans in order to deliver a growth in profits of 15 percent, based on a per-share basis.

During the most recent quarter, Sun benefited from a shift to higher-margin servers and storage products. Servers were strong in the workgroup area and in high-end enterprise servers. Sun said it shipped a record number of E10000 servers during the third quarter, and also had more favorable pricing on components.

Ed Zander, Sun's chief operating officer, cited several steps that the company is taking in its fight against Windows NT--a rival to its bread-and-butter Unix systems.

"One is producing great products, like the [Enterprise 450 workgroup systems] and Power Desktop, to show that we can compete in the areas we need to compete in," he said. "The 450 growth has been good, and our Ultra series had a good quarter."

In addition, Sun filled a key technology position just yesterday. The company named Greg Papadopoulos, former vice president of technology for its Sun Microsystems Computer division, as its chief technology officer. The position had been vacant since Eric Schmidt left to become Novell's chief executive officer.

Sun's JavaSoft division is facing a crucial year, facing significant pressure to show positive financial results, analysts have said. Although Sun does not break out the earnings of its subsidiaries, analyst Doug Van Dorsten, of Hambrecht & Quist, previously has estimated that the division's revenues range between $50 million and $100 million a year. Sun licenses Java to such giants as Motorola.

"Enterprise Java beans and the server side of the Java has become real now, not just the client and browser side of Java. And its also clear that Java is now playing in the appliance and consumer device arena," said McNealy. "It's quite a broadening of the Java concept."

A recent development in Sun's relationship with IBM includes Big Blue's licensing of the picoJava core for its microprocessor business. IBM offers picoJava to its customers so they can build custom chips for different appliances and devices.