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Software // Enterprise Applications

Sun Posts Bigger 1Q Loss

It lost $286 million as sales fell nearly 8% from the year-ago quarter due to continued weak demand.

SAN JOSE, Calif. (AP) -- Sun Microsystems Inc. reported a larger fiscal first-quarter loss Thursday as the computer-and-software maker continued to struggle with weak demand from its corporate customers and questions about its strategy.

For the three months ended Sept. 28, Sun lost $286 million, or 9 cents per share, compared with a loss of $111 million, or 4 cents per 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 were expecting Sun to lose 8 cents per share on sales of $2.5 billion, according to a survey by Thomson First Call.

Last month, Sun revised its fiscal fourth-quarter 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 first quarter.

Sun's problems not only stem from lackluster corporate demand for computers but also an industrywide shift toward lower-cost hardware and software, such as Intel's microprocessors and the open-source Linux operating system.

Sun has made moves in both areas, even as it still develops its high-end Unix-based Solaris operating system and Sparc processor. It's also bumping up the visibility of its Java language--branding software systems with the Java name and instituting an aggressive pricing strategy.

"We're doing our best to be a disruptive innovator," CEO Scott McNealy said. "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.

Analysts have criticized Sun for sticking with its proprietary architecture and trying to play in too many areas given its current level of revenue.

"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. In September, the company said it was cutting about 1,000 jobs, or 3 percent of its work force.

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."

Santa Clara-based Sun exited the first quarter with $5.5 billion in cash and marketable securities, down from $5.7 billion at the end of the fourth quarter.

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

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