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Sun Hit By Big Revenue Drop, Blames Slowing Economy

Sun has also struggled against IBM in the high end of the server market, while having to compete on price in the low end of the market with HP and Dell.
Sun Microsystems on Monday warned that revenue in the last quarter fell dramatically as a result of the slowing global economy.

The computer maker said it expects revenues in the fiscal first quarter ended Sept. 28 to range from $2.95 billion to $3.05 billion, compared with $3.22 billion the same period a year ago. The company's gross margin as a percentage of revenue for the latest full quarter is expected to range from 39% to 41%.

Based on generally accepted accounting principles, or GAAP, Sun estimates a loss per share from 25 cents to 35 cents a share. The loss includes a restructuring charge of $60 million that was announced Aug. 1.

Excluding one-time charges, Sun's non-GAAP losses were expected to range from 2 cents to 12 cents a share. That loss was a lot higher than analyst estimates, which according to Thomson Reuters was pegged at 1 cent a share. Analysts on average had expected revenue of $3.14 billion.

"Sun and its customers are seeing the impact of a slowing economy," Jonathan Schwartz, chief executive of Sun, said in a statement.

Sun also said it expects to write down the value of its business, saying that it was likely the market value of one or more of its units had fallen below what's currently listed on the company's balance sheets. The write-down and revenue drop are the latest signs of Sun's struggle to remain competitive against its larger rivals in the computer server market, Hewlett-Packard, IBM, and Dell.

Sun has adopted a strategy of using open source software as a means to spur hardware sales. That tactic, however, has yet to pay off. Instead, Sun has struggled against IBM in the high end of the server market, while having to compete on price in the low end of the market, which is dominated by industry-standard x86 servers running chips from Intel and Advanced Micro Devices.

In the second calendar quarter, Sun saw its revenue in the global server market fall by nearly 7%, while the industry as a whole saw an increase of 5.7% from the same period a year ago, according to Gartner.

In after-hours trading, Sun stock fell nearly 10% to $5.21. Before the announcement, Sun stock had ended regular trading up nearly 3.6% to $5.78.

Sun plans to report fiscal first quarter results Oct. 30.

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