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The company's operating margin, which surged to 8.5% three months ago, slid to 2% in the fiscal first quarter.
Sun did not provide financial guidance, although the company was slated to hold a conference call later Monday.
Shares of Sun were off 13 cents, or 2.2% at $5.58 in extended trading Monday.
thestreet.com
Sun Posts a Profit, But Sales Are Flat
By RIVA RICHMOND
November 5, 2007 5:48 p.m.
Sun Microsystems Inc. swung to a small profit in its first fiscal quarter as sales were flat in a quarter its chief executive called "seasonally challenging."
The Santa Clara, Calif., maker of software and servers reported earnings of $89 million, or three cents a share, compared with a loss of $56 million, or two cents a share, a year ago. The latest period included a $113 million in restructuring charges, or about three cents a share.
Revenue was $3.22 billion, compared with $3.19 billion last year.
Sun executives said they will continue to focus on improving the company's profitability, while making revenue growth improvement a longer-term priority.
For the current fiscal year, Sun said it still expects a revenue growth rate in the low to mid-single digits, but said it expects gross profit margins of 44% to 47%, one point better than it previously predicted. The company said it is on track to deliver operating margins of at least 8% for the year.
"I want to be clear that top-line growth is absolutely our No. 1 priority for" fiscal 2008, said Chief Executive Jonathan Schwartz in a conference call with analysts. Mr. Schwartz took the helm of Sun in April of last year and has focused particularly on cutting costs.
Chief Financial Officer Michael Lehman said on the call that he expects full-year operating expenses, excluding any restructuring expenses and based on current exchange rates, of $5.6 billion to $5.8 billion.
"We have increasing confidence in our ability to deliver against our stated financial objectives," Mr. Lehman said. "Longer term, we are clearly focused on improving the revenue growth rate and will continue to consider organic and inorganic ways to do so."
Late Monday, Sun reported fiscal first-quarter results that were "seasonally challenging, as expected," Mr. Schwartz said. Revenue for the period rose only 1% to $3.2 billion, amid anemic 1.1% growth in products revenue and 0.7% growth in services revenue. The U.S. was its most problematic market, posting a 4% revenue decline. Asia revenue grew 6%, however, and the other countries in the Americas grew 4%.
Gross margins as a percentage of revenue improved to 48.5%, up five percentage points from the same period a year ago.
Write to Riva Richmond at riva.richmond@dowjones.com
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