Sun logs first quarter loss of $286-million

SAN JOSE, Calif. - Not long ago, Sun Microsystems Inc. touted itself as the "dot in dot-com" as its expensive servers handled the behind-the-scenes work of any company that hoped to be a major player during the Internet boom.

In recent months, even as other companies that suffered during the tech bust show signs of recovery, Sun languishes in a downward financial spiral. The Santa Clara, Calif., computer and software maker's incessant flow of new strategies and product announcements has yet to stanch the bleeding.

The news wasn't better Thursday, when the company reports its fiscal first quarter results. For the three months ended Sept. 28, Sun lost $286-million, or 9 cents a share, compared with a loss of $111-million, or 4 cents a share, in the same period last year. Sales were down nearly 8 percent in the first quarter, to $2.54-billion from $2.75-billion. Analysts had been expecting Sun to lose 8 cents per share on sales of $2.5-billion, according to a survey by Thomson First Call.

Last month, it revised its previous-period earnings from a meager profit to a $1.04-billion loss and warned that it would lose up to 10 cents per share in the latest quarter.

"It's difficult for us to see any upside for Sun," said Brian Richardson, a Meta Group analyst. "In two years, they've seen their market position completely flip-flop to where Sun is now perceived as proprietary and expensive."

Merrill Lynch analyst Steve Milunovich was even more direct last month in an open letter to Sun's chief executive, Scott McNealy, and the board of directors.

"The company has gone from being pure in vision and predictable in financial performance to an underachieving, bloated, unfocused reflection of its former self," Milunovich wrote.

Sun's response at first was to dismiss the competition as abruptly as one of McNealy's famous one-liners. Lately, it has changed its tune by selling hardware and software that run on the trendy, open-source Linux operating system. Sun is also positioning itself as a total "systems" company at the high end.

After releasing its earnings, McNealy said, "We're doing our best to be a disruptive innovator. We think it's working. It's not showing up in our numbers. We're not happy with that, but we're plugging along and I think we're making good progress. So we're going to focus on execution."

Sun did report gains in its lower-end server business and reached its highest level of revenue ever from services for the first-quarter time frame, said Steve McGowan, the company's chief financial officer.

"It's kind of a no-win situation," McNealy said. "The real answer is, this company has to start growing again and start making a profit. Then, people will be looking for reasons why we're succeeding as opposed to, "You're wrong if you do this. You're wrong if you do that.' "

Sun did not announce any additional job cuts but did not rule out the possibility; analysts say they expect more. In September, the company said it was cutting about 1,000 jobs, or 3 percent of its work force. Previous major cuts included 11 percent of its work force, or 4,400 jobs, in 2002, and 10 percent, or nearly 3,900 jobs, in 2001.

The leadership bench has also cleared. Big departures ranged from president Ed Zander last year to co-founder and chief scientist Bill Joy last month.

The company also did not provide a second-quarter revenue or loss forecast, and McGowan declined to predict when Sun would return to sustained profitability. He said Sun will continue to focus on profitability and positive cash flow from operations.

"Customers tell us they support our strategy and want us to invest to see it to come to fruition," he said. "Please note that if we are unable to achieve our financial goals on a go-forward basis, we will take the necessary actions to restructure the company."

Sun's first-quarter results were announced after the markets closed. Shares closed at $3.63, down 16 cents or 4.3 percent, in trading Thursday on the Nasdaq Stock Market. In the extended session, they lost 8 cents.

Paradyne Networks Inc.: The Clearwater company that makes equipment for high speed Internet access, came close to analysts' expectations, reporting a narrower loss for the quarter that ended Sept. 30. Revenue, about 80 percent of which came from broadband users, declined 17 percent as the company pursued a new product strategy. Paradyne ended the quarter with $42.7-million in cash.

Regions Financial Corp.: The Birmingham, Ala., parent of Regions Bank reported a 5 percent increase in net income for the quarter that ended Sept. 30 helped by gains in mortgage, brokerage and insurance operations. The company's loan portfolio grew by 2 percent largely because of home equity loans. The company also approved a quarterly cash dividend of 32 cents a share payable Jan. 2.

Ford Motor Co.: Aggressive cost-cutting and strong results from its financial services business helped Ford narrow its loss sharply in the third quarter, but intense pricing pressure left it with red ink in its automotive operations. Ford also revised upward its full year earnings forecast from 70 cents a share to 95 cents to $1.05 a share. Trying to rebound from $6.4-billion in losses in 2001 and 2002, Ford has announced more than 7,700 job cuts worldwide in recent weeks.

Coca-Cola Co.: Strong international growth offset flat demand for Coca-Cola products at home as the world's largest beverage maker reported a 12 percent increase in third quarter earnings, beating Wall Street expectations. Executives said the international growth, led by China and several European countries, was welcome news Thursday, considering Coke posted only 1 percent unit case sales growth in North America.

Sears, Roebuck and Co.: Third quarter profits fell 22 percent at Sears because of costly cutbacks to its Great Indoors home decor chain, but the retailer's earnings beat expectations. Results included a charge of $89-million, or 32 cents a share, to close three Great Indoors stores and convert a fourth to an outlet store. The company ended a 23-month sales losing streak during the quarter, recording higher same-store revenues in August for the first time since September 2001, thanks to stronger home appliance sales and an improving economy.

Continental Airlines: Boosted by strong summer traffic and sale of its ExpressJet stock, Continental swung to a profit of $133-million in the third quarter in contrast to a loss a year earlier. But its chief executive said the carrier still faces tough times. Excluding the gain from the ExpressJet Holdings Inc. sale, Continental earned 49 cents a share for the quarter. Analysts surveyed by Thomson First Call expected earnings of 43 cents earnings per share.

Northwest Airlines Inc.: Northwest reported its second consecutive quarter of profitability Thursday but warned that the results don't signal an end to its financial troubles. The results surprised Wall Street. Analysts surveyed by Thomson First Call has expected a loss of 49 cents a share. Chief executive Richard Anderson said that, "while it is encouraging to report a profit, the third quarter is traditionally strong for the industry due to greater demand in the summer months and in particular for Northwest because of its significant Pacific operation, which has an even greater summer demand peak.

Office Depot Inc.: The world's largest seller of office supplies said Thursday third quarter earnings increased as the company began integrating its acquisition of a French competitor, Guilbert SA. The company beat the average of Wall Street analysts' estimates for the quarter of 28 cents per share, according to Thomson First Call.

Honeywell International: The aerospace and high-tech manufacturer posted a 17 percent drop in third quarter profit as increased pension expenses and overhead costs offset slightly higher revenues and the airline industry slump continued. The earnings matched the consensus forecast of analysts surveyed by Thomson First Call.

Mattel Inc.: The world's largest toymaker reported a 3.8 percent drop in third quarter earnings Thursday, citing lagging domestic sales hurt by retailers still focused on trimming inventories. Its performance matched Wall Street projections. Excluding income from plant consolidation and charges related to a financial realignment plan, Mattel

UnitedHealth Group: The insurer said Thursday that third quarter earnings rose 35 percent on strong revenue growth across its business segments. "Our strong and consistent results notwithstanding, UnitedHealth Group businesses have not yet obtained optimum performance for either customers or shareholders," said William McGuire, chairman and chief executive.

eBay Inc.: The San Jose company reported Thursday that its profits leapt 69 percent in the third quarter, barely exceeding the online auction leader's conservative estimates and matching Wall Street's expectations. Executives credited continued international growth for the double-digit revenue and profit increases, which have become a tradition for eBay. They expressed confidence that holiday spending and e-commerce activity would be strong, despite high unemployment nationwide and economists who are bracing retailers for a Grinch-like Christmas.