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Sun 2Q profit beats estimates
2008-01-24
Sun Microsystems Inc.'s fiscal second-quarter profit nearly doubled to edge past Wall Street's estimates, reflecting the server and software maker's cost-cutting efforts and maneuvers to shore up demand amid fierce competition, the company reported Thursday. The Santa Clara-based company released the report after the market closed, following a rally fueled by investor optimism about the results. Sun's stock rose $1.30, or nearly 9 percent, to $16.12. And in after-hours trading, it gained another 23 cents, rising to $16.35. However, shareholders' enthusiasm hasn't been enough to lift the stock price back to the $20 range where it stood after Sun executed a 1-for-4 reverse stock split in November. The essentially cosmetic move was intended to shed the stigma of slumping shares, but the stock has declined steadily since then on fears about Sun's competitiveness and future profitability. Sun reiterated its financial guidance of low- to mid-single-digit sales growth in 2008. Revenue is expected to grow more than 5 percent in the second half of the fiscal year. Sun's net income leaped 95 percent, rising to $260 million, or 31 cents per share, for the three months ended Dec. 30. That was a penny higher than the average estimate of analysts surveyed by Thomson Financial, and nearly twice as high as Sun's profit of $133 million, or 15 cents per share, during the same period a year earlier. Sales were $3.61 billion, slightly higher than the $3.59 billion Wall Street was expecting. They only inched up from the same period last year, when Sun registered $3.57 billion in sales. Sun executives frequently point to the company's efforts to lower its manufacturing costs and improve the profitability of its products as signs its turnaround efforts are bearing fruit. The company racked up more than $5 billion in losses after the dot-com meltdown, but has since turned the corner on profitability, posting its fifth straight quarter in the black. Gross margin, which measures how much money a company made once the cost of making its products are stripped out, rose 3.5 percentage points over last year to 48.5 percent of revenues. Sun executives said the company is profiting from a shift to more complicated setups of servers and data-storage machines, which command higher prices and lock customers in to longer service contracts. They highlighted Sun's surging deferred revenues, or money Sun has received for products and services that haven't been delivered yet. Sun's deferred revenues during the latest quarter jumped 24 percent to $2.69 billion, a sign that Sun is locking in more future business. Those revenues will be incorporated into Sun's profit and sales figures in future quarters. Still, investors are worried about how well Sun is weathering intensifying competition from rivals such as IBM Corp. and Hewlett-Packard Co. in the market for the servers that power corporate data centers and services to support them. Sun has broadened its strategy of partnering with one-time foes to increase the adoption of Sun products, but the strategy has some shareholders worried that it will actually speed the adoption of rivals' products at Sun's expense. Sun's server revenue was down 2.4 percent to $1.59 billion in the latest quarter, but the company experienced strong growth in its support services and data-storage divisions, whose sales each grew more than 4 percent, to $1.04 billion and $655 million, respectively. ___ AP Business Writer Rachel Metz contributed to this report from New York.
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