Sun shows profit in preliminary earnings report

Company also reveals management changes

Sun Microsystems Inc. on Tuesday reported a profit of $795 million or $0.24 per share in the fourth quarter, compared with a loss of $1.039 billion or $0.32 per share in the same quarter of last year.

Total revenue for the quarter, which ended June 30, was $3.11 billion, up 4.3 percent from the year-earlier quarter, Sun said in a statement.

Sun's profits were buoyed by the nearly $2 billion it received as part of its legal settlement with Microsoft earlier in the quarter. Discounting the Microsoft money, Sun reported a net loss of $169 million or $0.05 per share.

Analysts had been expecting the company to report a loss of $0.04 per share on revenues of $2.89 billion, according to a poll of financial analysts by Thomson First call.

Sun's revenues were driven by strength in its traditional markets, including the communications and financial services industries, and by the ramp-up of systems based on Sun's UltraSparc IV processor, which now account for 30 percent of the company's server revenue, said Stephen McGowan, Sun's chief financial officer.

UltraSparc sales should account for half of server revenues in the quarter ahead, he said.

Though sales of Sun systems based on Intel Corp. and Advanced Micro Devices Inc. x86 processors were "still not a material revenue figure," according to McGowan, Sun's server sales volume grew significantly.

"Our server systems unit volume increased 46 percent in Q4 on a year-over-year basis," McGowan said during a conference call Tuesday with press and analysts. "We view this volume growth as a leading business indicator."

Revenue for the company's services division was slightly above $1 billion, up from the $940 million it reported in the third quarter.

Sun also saw growth in the number of subscribers to its Java Enterprise System suite of middleware. There are 303,000 subscribers to the system, which has a list price of $100 per user per month. This was up 75 percent from 174,000 total subscribers during the previous quarter, Sun said.

The Santa Clara, California, company's results include $1.6 billion of other income, and $350 million in deferred other income related to Sun's settlement with Microsoft, the company said. Sun is waiting for the U.S. Securities and Exchange Commission to confirm its accounting for that settlement. Until then, the financial results reported Tuesday are preliminary figures, the company said.

The company also announced a couple of management changes during the conference call. Effective immediately, Robert Youngjohns, the former executive vice president of Sun's global sales organization, will become executive vice president, strategic development and Sun Financing. Youngjohns is replaced by Robert MacRitchie, who will serve as the acting head of the company's sales organization.

Youngjohns' group will be a new division within Sun, and in addition to providing financing services for Sun's customers, will also pursue a number of acquisition and "corporate expansion discussions" that are currently underway, Schwartz said.

"Our balance sheet will enable us to be one of the most powerful financing organizations in the industry and Robert will be working closely with me to leverage that competitive advantage," Schwartz said.

The company will also continue its downsizing over the next quarter with the final 900 of a planned 3,300 job reductions expected to be announced over the next three months, according to McGowan.

The company's research and development (R&D) efforts, which cost nearly $2 billion during the company's most recent fiscal year, will be affected by the downsizing. Though Sun declined to say how much it was cutting specifically from R&D, McGowan said the company would reduce the amount it was spending on R&D, and selling, general and administrative expenses by $500 million during the year ahead.