Sun Beats Estimates with Narrower-Than-Expected Loss

Server and software maker Sun Microsystems Inc. beat Wall Street's tepid expectations Thursday, reporting a narrower-than-expected loss for the first quarter thanks to the growing popularity of its operating system for corporate computers.

Losses for the three months ended Oct. 1 shrank by more than half to $56 million, or 2 cents per share, from $123 million, or 4 cents per share, in the year-ago period.

First-quarter revenue totaled $3.19 billion, up 17 percent from $2.73 billion last year.

Excluding $21 million in restructuring and other one-time costs, the company lost $42 million, or 1 cent per share, compared with $68 million, or 2 cents per share in the year-ago period.

On that basis, which doesn't comply with generally accepted accounting principles, analysts surveyed by Thomson Financial expected the company to post a loss of $141.71 million, or 4 cents per share, on $3.2 billion in revenue.

Santa Clara-based Sun -- one of the highest flying companies during the late 1990s Internet boom -- has had more than $5 billion in net losses since 2002, when computer-related spending dried up and lower-cost offerings from competitors encroached on its turf.

But in fiscal 2006, Sun revenue surged 18 percent -- confirmation that the company's cost-cutting measures and overall business strategy is paying off, executives said. Sun is known as a company catering to corporate clients willing to spend liberally on cutting-edge technology -- not customers looking for the cheapest possible computer servers and bare-bones consulting services.

Sun, which ended the quarter with 36,250 employees, has eliminated 2,000 workers since the end of June, and executives expect to slash 1,000 to 2,000 by the end of the fiscal year.

Sun CEO Jonathan Schwartz said during a conference call Thursday that corporate information technology departments appear to be segmenting into two disparate groups: "those who see IT as a place for innovation ... and those who see it as a cost center to be eliminated."

"We're laser-focused on the former," Schwartz said. "No competitor can match the value we deliver. ... We believe we are well on track to a successful future."

Before the results were released, Sun shares they gained 6 cents, or 1 percent, to close at $5.36 on the Nasdaq Stock Market. In extended trading, they lost 3 cents.


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