Sun on track to meet Q3 goals, Intel narrows Q1 estimates

End-of-the-quarter deals at Sun Microsystems Inc. aren't closing as the company had expected, but Sun is on track to meet its financial projections for its fiscal third quarter, its finance chief said yesterday in a midquarter conference call with analysts.

Also yesterday, Intel Corp. narrowed its first-quarter revenue estimate, announcing that it now expects revenue of $6.6 billion to $6.9 billion for the quarter ending March 30. Intel previously forecast revenue of $6.4 billion to $7 billion.

Orders of Sun's high-end servers are "running a bit behind" what the company had planned, said Michael Lehman, Sun's chief financial officer and executive vice president. Some orders came in too late to be recognized in the current financial quarter. Typically, about 50% of the orders placed are closed in the last four weeks of a fiscal quarter, he said.

Despite this, the company made no changes to its financial outlook for the third quarter, which ends this month. The Palo Alto, Calif.-based server maker said during its second-quarter earnings call on Jan. 18 that revenue would be "slightly up" from the second quarter. Sun reported revenue of $3.1 billion for the second quarter, with an adjusted net loss of $99 million, or 3 cents per share.

"There's no change from what we said earlier," Lehman said.

With the weak economy providing no assistance, Lehman said, Hewlett-Packard Co.'s controversial acquisition of Compaq Computer Corp. could make room for Sun to steal some high-end Unix customers from those two companies.

"It's a great opportunity to get in the door," he said. "It's a very real opportunity for companies to step back and say, 'Who do I want to partner with ... for the long term?' We and a couple other companies are looking at this potential combination and viewing it as an opportunity to go in and pitch our story."

Offering a glimpse of its products, Sun said customer adoption of its UltraSPARC III line of servers is coming along well. "The ramp continues to build nicely," Lehman said.

Lehman said the company still plans to return to profitability by the fourth quarter, which ends in June, and expects to reduce inventory levels. The fourth quarter could also bring a small reduction in its workforce, he said.

"There are still a significant number of risks that are limiting ... growth in IT spending in the next three months," Lehman said. "We have no doubt that we will exit this period of uncertainty with a stronger company."

Meanwhile, Intel said its microprocessor business is following traditional seasonal patterns, while its communications businesses remain weak.

Intel reported revenue of $6.7 billion in its first quarter last year, a 16% drop from the previous year.

For more coverage of this issue, head to our Financial/Industry news page.

Copyright © 2002 IDG Communications, Inc.

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