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SAN FRANCISCO, May 1 (Reuters) - Sun Microsystems Inc JAVA.O on Thursday posted an unexpected net loss and decline in quarterly revenue, saying the U.S. economy posed "significant challenges," and it announced up to 2,500 job cuts.
Sun shares dived 15 percent after the surprise announcement following the close of regular trading on Nasdaq.
“Our third quarter was a challenging one in which U.S. macroeconomic factors impacted our overall progress,” Chief Executive Jonathan Schwartz told analysts on a conference call after the earnings report. “I’m disappointed.”
Sun said it would cut 1,500 to 2,500 jobs, or as much as 7.5 percent of its total workforce of 33,500, after U.S. customers delayed orders of high-end business computing and data-storage systems. The drop-off was sharpest among U.S. government, retailing and telecommunications customers, Sun said.
Analyst Brent Bracelin of Pacific Crest Securities said Sun was worse off than rivals in the current economic slump because many of its products are older systems already facing weakening demand.
“Clearly, there’s an element of macroeconomic concerns impacting Sun,” said Bracelin, who has a “sector perform” rating on Sun’s stock. “They’re just accentuated by having the boring legacy products that no one wants to buy.”
The Santa Clara, California-based company projected current-quarter revenue to be flat versus the just-completed fiscal third quarter, as it does not expect all of the delayed orders to come through in the fourth quarter.
U.S. revenue fell about 10 percent in the third quarter from a year earlier, Chief Financial Officer Michael Lehman told analysts on the call, and said computer systems and data storage equipment each had revenue shortfalls of about $100 million in the quarter.
Sun earns about 60 percent of its revenue from outside the United States, while competitors such as International Business Machines Corp IBM.N and Hewlett-Packard Co HPQ.N each generate about two-thirds of their revenue abroad.
IBM and HP both reported better-than-expected results in their most recent earnings reports, citing strong growth in emerging markets.
Sun, the world’s fourth-largest business computer maker, reported on Thursday a fiscal third-quarter net loss of $34 million, or 4 cents per share, compared with net income of $67 million, or 7 cents per share, a year earlier.
It blamed the loss on charges related to the $1 billion February purchase of Swedish open-source database software maker MySQL AB, which reduced net income by about 4 cents per share, and a higher tax bill.
Excluding those charges, Sun broke even on a per share basis, compared with the average analyst forecast for a profit of 18 cents per share, according to Reuters Estimates.
Revenue slipped to $3.27 billion from $3.28 billion, while analysts, on average, had expected revenue growth of 3 percent to $3.38 billion, according to Reuters Estimates.
Sun recorded taxes of $52 million compared with a year-earlier tax benefit of $3 million.
“The U.S. economy presented Sun with significant challenges in the third quarter, masking our progress in developing nations and economies across the world,” CEO Schwartz said in a statement.
Sun’s third-quarter gross profit margin was 44.9 percent, up less than one point from the year-earlier period. The company had said in January it expected a gross margin of 45 percent to 47 percent for the fiscal year ending in June, and full-year revenue growth in the low- to mid-single-digit percentage range.
Sun’s earlier growth target assumed revenue would increase at least 5 percent in the second half of its fiscal year ending in June, after gaining only 1.2 percent in the first six months of the fiscal year.
Sun bought MySQL to expand in the open-source database market, hoping the acquisition would drive sales of Sun computer servers, storage systems and technology services.
Shares of Sun had staged a comeback under Schwartz, who took over from Scott McNealy in 2006, but were down 9.9 percent this year through Thursday’s close as technology stocks slumped.
Sun's server revenue slipped in the last three months of 2007 while larger rivals IBM, HP and Dell Inc DELL.O all boosted revenue, according to researcher IDC. HP and Dell also gained market share while Sun slipped.
Sun shares closed up 67 cents, or 4.3 percent, at $16.33, only to fall 15 percent to $13.85 after the news was announced. (Editing by Richard Chang/Phil Berlowitz/Braden Reddall)
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