The Telegraph
Since 1st March, 1999
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Sun Micro fails to shine

San Francisco, Oct. 18: Struggling with an increasingly uncertain and bleak corporate economy, Sun Microsystems said Thursday that it would lay off 11 per cent of its employees and reported a loss for its first quarter, but exceeded Wall Street’s earnings expectations.

Through 2001, Sun, a computer company, was one of the biggest beneficiaries of both the dot-com boom and the telecommunications and internet industry expansions. Now the company is trying to navigate an increasingly challenging technology recession, as corporate capital spending declines and competitors offering the Windows and Linux operating systems on their computers challenge Sun.

Sun said that it plans to cut 4,400 employees at sites around the world, beginning in November. Sun currently employs about 39,400 workers.

The cuts were lower than financial analysts had speculated in recent days, and several Wall Street technology analysts said that the level suggested that Sun’s chief executive, Scott McNealy, was having some success in managing the company through the recession.

Sun’s revenue for the first quarter of its 2003 fiscal year were $ 2.7 billion, down 4 per cent compared with $ 2.9 billion for the first quarter of 2002. The figure was slightly less than analysts had expected, and the company said that an end-of-the-quarter improvement it had hoped for had not materialised.

But the company’s net loss for the first quarter was $ 111 million, or 4 cents a share, compared with a net loss of $ 180 million, or 6 cents a share, for year-earlier period. Excluding several one-time financial charges and benefits—including a $ 31 million loss on equity investments, a $ 24 million charge in connection with previous revamping charges and a $ 22 million tax benefit—the net loss was $ 78 million, or 2 cents a share.

The Wall Street consensus was a 4-cent-a-share loss, according to Thomson First Call. Sun’s stock closed at $ 2.99 in regular trading, up 19 cents, and rose after hours as high as $ 3.09.

The company said it was pushing hard to reach break even financially and suggested that if it saw some seasonal improvement in the economy, it might return to profitability in the second half of next year.

Sun’s break-even point was once $ 4 billion, and the company has made continual cutbacks as the economy has worsened. Sun’s chief financial officer Steve McGowan said the company would now break even at about $ 3.2 billion, but he said it would be affected by Sun’s margins.

The company said that it was continuing to generate cash despite its losses and that the amount of cash it had on hand had grown to $ 5.2 billion, against $ 1.5 billion in debt.

Sun stated that it had paid off $ 200 million in debt and bought back $ 500 million in stock during the quarter as a demonstration of its financial strength.

“They’re a big company—they’re not going away,” said Steven Milunovich, a financial analyst at Merrill Lynch, an investment firm based in New York. He noted that in the future, corporations will increasingly need the technology that Sun is selling, but the challenge for the computer maker will be to remain relevant to its customers.

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