4Q Sales Slide Wraps Up Disappointing Year For Sun - InformationWeek

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4Q Sales Slide Wraps Up Disappointing Year For Sun

Revenue in the quarter fell 13%, capping an 8.5% drop for fiscal 2003, as losses continued to mount.

It was a tough year for Sun Microsystems, which saw revenue for fiscal 2003 slide 8.5%, to $11.4 billion, from $12.5 billion in the previous year. Net losses continued to mount as well. Sun on Tuesday reported a loss of $2.4 billion, or 75 cents per share, in fiscal 2003, compared with a loss of $587 million the previous year.

For its fourth quarter ended June 30, Sun reported a profit of $12 million, breakeven on a per-share basis, on revenue of $2.98 billion. That's down from a $61 million profit, or 2 cents per share, on revenue of $3.42 billion a year ago.

One ray of light for Sun was its ability to lower the cost of its products and services while keeping prices stable. This helped the company increase its total gross margin as a percentage of revenue to 43.2%, up 3.9 percentage points compared with fiscal 2002. Steve McGowan, Sun's CFO, attributes the bump in margins to the company's "maniacal focus on cost." This includes continuing to partner with service providers, rather than grow its own services organization, and moving manufacturing facilities around outside the United States to find the cheapest locations.

But cost cutting hasn't inspired customers to purchase more Sun servers, storage, and desktops. And things aren't getting any easier. During the quarter, Intel launched the latest version of its 64-bit Itanium 2 processor, called Madison, while Microsoft took the wraps off its 64-bit Windows Server 2003 operating system. "We've got to get the product revenue turned around," McGowan acknowledges. Sun sees its greatest opportunity for product growth in the entry-level server market, where it has been adding to its lineup of 32-bit Intel-based servers.

Sun is focused on the future and "got a lot done" in the just-concluded fiscal year, and it's targeting new markets such as government agencies, CEO Scott McNealy says. "Obviously, we were dealing with a tough year. We didn't grow the business. That's something we're not happy with and we've got all our energy focused on both growing the company and being profitable for this fiscal year."

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