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Written by: Staff

SAN FRANCISCO, Oct 27 (Reuters) Computer maker Sun Microsystems Inc. posted a narrower first-quarter net loss as revenue rose 17 percent, helped by its acquisition of tape storage company StorageTek and growth in its services business.

Sun forecast second quarter revenue would rise ''in the high single digits'' from the first quarter. Shares were unchanged in after-hours trade.

In the past five years, Sun has completely revamped its product line, embracing Opteron processors from Advanced Micro Devices Inc. for use in lower to mid-level computers.

Chief Executive Jonathan Schwartz, who took the reins in April from co-founder Scott McNealy, has also cut jobs by some 13 percent in a bid to help return Sun to profitability.

''Revenue growth was not as high as some had hoped,'' said Brent Bracelin, an analyst at Pacific Crest Securities. ''The important thing is the company continues toward its goal of reaching profitability.'' Sun's net loss was narrower than analysts expected. The company noted, in addition to growth in its services business, a 15 percent revenue increase at its computer systems products business, which includes servers.

Sun reported a net loss for its first fiscal quarter ended Oct. 1 of $56 million, or 2 cents per share, versus a year-ago net loss of $123.0 million, or 4 cents per share. Revenue rose to $3.19 billion from $2.73 billion.

Analysts polled by Reuters Estimates expected a net loss per share of 6 cents on revenue of $3.18 billion.

According to market researcher IDC, Sun regained the No. 3 ranking in the worldwide server market in the second quarter, and boosted its market share to 12.9 percent from 11.2 percent a year ago. Its server revenue growth was 15.5 percent in the second quarter, far outpacing that of rivals Hewlett-Packard, IBM and Dell Inc.

The clear majority of Sun's server revenue is generated from its UltraSPARC-based systems, but the growth in its Opteron-based servers is having an effect, too, IDC said.

''It's great to grow faster than the competition, maintain strong gross margins and see continued adoption of Solaris on HP, Dell and IBM computers,'' said Sun Chief Executive Jonathan Schwartz.

Solaris is Sun's version of the Unix operating system.

Schwartz has said that, since Sun opened up the code to Solaris, some 70 percent of Solaris downloads are installed on servers made by rivals Hewlett-Packard Co., Dell Inc. and IBM.

Sun reduced its headcount by about 2,000 since the end of June, and it said it expects to cut another 1,000 to 2,000 jobs by the end of its fiscal year ending in June 2007.

Revenue from Sun Microsystems products, which include its server and storage gear as well as software, rose 15 percent to $1.96 billion while services revenue climbed 20 percent to $1.23 billion.

On a conference call, Schwartz said that revenue in its software business rose 17 percent from a year ago, but later declined to break out that unit by revenue when asked by an analyst. He added that its SPARC-chip-based server business grew revenue by 10 percent from a year ago.

Sun servers using Opteron chips continued its strong growth, with unit growth of 52 percent and a more than 75 percent increase in revenue. That business, Schwartz said, now has an annual run rate of more than $600 million.

Sun shares have risen 29 percent so far this year, rebounding since July after a sharp sell-off in the first half of the year, reflecting a broad-based rise in technology and U.S. stocks. In the same period, rivals HP has climbed 37 percent and IBM has gained 12 percent.

Shares of Sun rose 6 cents, or 1.1 percent, to close at $5.36 on Nasdaq. In extended composite trade, the shares dipped to $5.29, a decrease of 1.3 percent, before later bouncing back to $5.35.

Reuters DKS VP0453

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