Sun Still Sees Return to Profits by June

Sun Microsystems Inc. on Thursday said it lost money in its fiscal third quarter — the fourth time in a row it recorded quarterly loss — citing a
24-percent decline in revenue but officials still expect to return to
profitability by the end of its fiscal year 2002 in June.

The Palo Alto, Calif.-based workstation maker reported net losses of
$37 million, or 1 cent a share, for the quarter ended March 31. The company
hasn’t been profitable since the third quarter of last year when it made
$136 million, or 4 cents a share, in profits. Revenue dropped from $4.1
billion to $3.1 billion in the latest period.

The loss was slightly narrower than anticipated but the revenue came in
at the low end of expectations. So far in fiscal 2002, Sun lost $648
million, or 20 cents a share, mainly on restructuring costs. Revenue totaled
$9 billion through the first nine months of the fiscal year.

Despite four consecutive quarters of losses, Chief Financial Officer
Michael Lehman said on a conference call that it still stands behind its
commitment to return to profitability by the fiscal fourth quarter ending in
June. The firm anticipates that inventory levels and cost reductions will help with this endeavor.
Although there’s been no official word of a hiring freeze, Sun officials
confirmed the goal is currently to maintain a flat headcount while reducing
total number of employees through attrition. In addition, Sun last October
announced the reduction of 9 percent of its workforce.

“From our HR perspective, it’s more about making our employees on board
more effective than hiring,” a company spokeswoman said.

Going forward, Sun expects revenue to be “up sequentially” from the
latest quarter and see improvements in gross margins in June. But that still
hasn’t satisfied the critics.

“Sun’s problems are deeper than just the collapse in business IT spending
and nagging competitive signs,” said Bill Whyman of the Washington-based
Precursor Group.

In a research report, Whyman said Sun still faces the
problems of monetizing its Java software and fighting IBM, which has become
more aligned with arch-rival Microsoft.

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