Sun's revenue drops 11% in Q2

Takes $222M restructuring charge in wake of November workforce reductions

Sun Microsystems Inc. reported an 11% drop in revenue for its second quarter of fiscal 2009 but managed to beat the modest expectations of financial analysts.

Revenue for the quarter, which ended Dec. 28, was $3.22 billion, down from $3.62 billion in the same quarter a year earlier, Sun reported today. That was slightly ahead of the consensus analyst estimate of $3.16 billion, according to Thomson Reuters.

Sun reported a net loss for the quarter of $209 million, or 28 cents per share, which compares to a net profit of $260 million, or 31 cents per share, for its second quarter of fiscal 2008. The loss per share includes $222 million in restructuring charges, related mostly to the mass workforce reductions that Sun announced in November.

Excluding those and other charges, Sun said that it would have reported a profit for the quarter of $114 million, or 15 cents per share. Analysts had forecast a loss before charges of 10 cents per share, so the profit was an unexpected surprise.

Sun has been battling to grow its revenue for several quarters as customers cut back spending on its high-end Sparc servers in favor of industry-standard x86-type machines. Some of Sun's largest customers are big financial firms, so it has been hit particularly hard by the turmoil on Wall Street.

The company announced a plan in November to lay off up to 18% of its workforce, or 5,000 to 6,000 employees, as part of a restructuring designed to save it $700 million to $800 million per year. The move followed Sun's report of a $1.68 billion loss for the September quarter.

Sun increased its server unit shipments by 3% in the third quarter last year, according to the most recent figures from Gartner, but its revenue declined 14%, more than any of its big rivals, as customers cut back on larger Unix system purchases.

Sun has a well-regarded family of x86 servers, based on AMD quadcore Barcelona processors, but the company came to that market relatively late and its revenue from those systems, while growing quickly, is not offsetting the decline in its high-end server business.

Shipments of x86 servers grew 11% year over year, Sun said, and those products are now selling at an "annual run rate" of about $700 million, based on the figures from its first and second fiscal quarters. Software revenue grew 21% year over year for an annual run rate of about $600 million, the company said.

Those figures are still relatively small compared to its total revenue. Sun didn't break out an overall figure for its systems business in its press release. Revenue from products overall declined to $1.94 billion for the quarter, down from $2.25 billion in the same quarter a year earlier. Services revenue declined to $1.28 billion from $1.37 billion.

Sun has put a much greater focus on software, particularly open-source software, since Jonathan Schwartz replaced Scott McNealy as CEO in April 2006. The company has made virtually all of its own software open source, and early last year it bought the open-source database leader MySQL for about $1 billion.

The idea is to get more companies using Sun products, even if the software is free to acquire, with the idea that Sun will be able to upsell those customers to support contracts and Sun hardware. That strategy has taken time, however, and shareholders have been getting impatient for a faster turnaround.

Copyright © 2009 IDG Communications, Inc.

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