Sun Posts 3Q Profit Despite Sales Decline

Although year-over-year quarterly revenue was down 10%, Sun Microsystems managed to climb back into the black for its third quarter. On Wednesday, Sun reported a profit of $4 million on revenue of $2.79 billion for the quarter ended March 30. This compares with a loss of $37 million, or 1 cent per share, on revenue of $3.11 billion in the year-ago quarter.

Sun's challenge for the quarter was to cut spending by about $200 million in the past year while maintaining its investments in research and development. "We've been taking out expenses in large chunks," says Steve McGowan, CFO and executive VP of corporate resources. "Our goal is to return to profitability."

Sun sees a lot more opportunities to improve operating efficiencies as well as lower costs for its customers, CEO Scott McNealy says. He identified the entry-level 32-bit server and the midrange storage markets as opportunities for sales growth.

During the quarter, Sun introduced a number of products and strategies surrounding its UltraSparc processors, Java 2 Enterprise Edition development environment, and Project Orion software-delivery strategy. Sun is developing a generation of UltraSparc processor that can read multiple threads of information simultaneously and improve application performance on its servers. At the same time, Sun continues its work to integrate all of its software products into Solaris and will within the next 12 months begin offering its customers the choice of paying for software based on a flat annual fee, a variable utility-type fee, or the more traditional model of per CPU or user.

During the quarter, Sun also revealed plans for a summer launch of the next version of J2EE, which will include several features to spur mainstream Web-services adoption. J2EE version 1.4 will include full support for the Web Services Interoperability Organization's Basic Profile specification, meaning companies will be able to more easily use J2EE to write integrated apps.

Sun plans to offer through its Project Orion initiative a completely integrated software package that initially will include the Sun Open Network Environment. Sun One consists of directory server, identity server, application server, portal server, messaging, and provisioning software. The company will later add clustering and storage-management software to Orion.