Sun Micro shows signs of recovery

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Sun Microsystems showed early signs of a long-awaited turnround on Tuesday as it reported a stronger bounce in sales of new computer hardware than expected in the most recent quarter.

However, the company reported a loss of $301m as a result of restructuring and other charges.

Executives at the struggling Silicon Valley maker of servers and computer storage equipment pointed to the latest sales gains as evidence that an overhaul of Sun’s product range over the past two years was starting to have an impact. The company’s shares edged up by 4 per cent in after-market trading following the figures, although they later gave up much of the gains.

For the latest period, the fourth quarter of its fiscal year, Sun reported revenues of $3.83bn, well ahead of Wall Street estimates of $3.61bn. Although reflecting a normal seasonal bounce for the company’s fourth fiscal quarter, the 21 per cent advance in sales compared with the preceding three months was the biggest seasonal jump that the company had seen since the height of the boom six years ago, said Mike Lehman, chief financial officer.

Despite the advance, Sun issued a cautious outlook for the current quarter, predicting a sales decline of similar magnitude for its seasonally slow first quarter. That, along with signs of marginally weaker profit margins, tempered the enthusiasm over signs of returning growth.

Jonathan Schwartz, who took over as chief executive earlier this year, defended the company’s decision to chase higher sales volumes even if it meant competing fiercely on price in some cases.

“Growth is the best way to deliver the operating margin [target] – just sitting here cutting costs doesn’t give us much runway,” said Mr Schwartz.

Sun said in May that it would cut some 13 per cent of its workforce, or as many as 5,000 jobs.

Of the company’s conservative forecast for the coming quarter, Mr Lehman said: “We’ve got to be realistic, and we’ve got to make sure we’re successful.” Mr Schwartz added that the company would cut its costs to match its “conservative revenue levels”, leaving the possibility of stronger margins if it the targets proved too pessimistic.

Sun reported a loss of 9 cents a share, compared with 1 cent profit of a year before. Leaving aside one-off items, Sun said it would have just broken even, implying a better performance than the 3 cents a share loss analysts had anticipated.

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