Thursday January 21 7:12 PM ET
Sun Micro Posts Stronger Profits, Splits Stock 2-1
By Therese Poletti
SAN FRANCISCO (Reuters) - Sun Microsystems Inc. (Nasdaq:SUNW - news) reported slightly better-than-expected second quarter earnings, propelled by strong
sales of servers, workstations, services and storage products in almost all geographies.
The Palo Alto, Calif.-based company, which has seen its stock soar in recent weeks, also announced a 2-for-1 stock split, to shareholders of record as of January 21.
Sun reported net income of $261.1 million, or 64 cents a share, including charges, for its second fiscal quarter, up from $149.4 million, or 38 cents a share a year ago.
Excluding charges for acquisitions, Sun earned $272.3 million, or 67 cents a share, just above the Wall Street forecast of 66 cents, according to First Call Corp.
Sun said revenues rose 14 percent to $2.78 billion from $2.45 billion during the second quarter, ended Dec. 27. It took charges totaling $12 million related to
acquisitions of Beduin Communications Inc. and i-Planet Inc.
''We feel very good about our competitive position and our business model,'' said Ed Zander, Sun's chief operating officer, on a conference call with analysts.
Last quarter, even though Sun's order growth rate was better-than-expected, the company warned Wall Street analysts not to raise earnings estimates for the second
quarter, due to a switch to new software in its computer systems unit.
''We are pleased to have this quarter behind us,'' said Michael Lehman, Sun's chief financial officer. ''We told you that the December quarter would turn out to be a
nail biter,'' he said, adding that Sun successfully completed the transition to its new computing systems in the quarter.
Sun said that it had record sales of its low-end Ultra 5 workstations and its workgroup servers, the E250 and the E450, which run groups of systems connected to a
network.
Sun also saw very strong growth in some of its storage products, such as its 10000, 1000 and Starfire. Its services business, which is about 12 to 15 percent of total
revenues, had ''torrid growth,'' of 38 percent in the December quarter. Sun's storage business also had strong growth in the quarter.
Lehman said the company's growth rate in the second half would accelerate beyond the 16 percent revenue growth Sun has reported in the first six months of fiscal
1999.
''It was 16 percent in the first half of the year and we are planning it to be higher,'' Lehman said in a phone interview, adding that he could not be more specific about
growth rates.
During the quarter, the company said that its revenues grew in almost all geographies, with the exception of Brazil. Japan had its second sequential quarter of revenue
growth. Revenues in the U.S. were up 15 percent and in Europe, jumped 22 percent. Revenues would have been one to two percentage points higher if currencies had
remained constant in the quarter.
Gross profit margins were 51.6 percent of revenues in the second quarter, down slightly from 52.2 percent in the year-ago quarter. Last year, Sun saved some product
costs by lower memory chip and other component costs.
Jay Stevens, an analyst at Buckingham Research in New York, said he was impressed with the quarter, calling the results ''very good.'' He was also pleasantly
surprised by the company's backlog of orders, which he said surpassed his expectations.
''The backlog was higher than what I was looking for so that bodes well for the future,'' said Stevens. Sun's backlog of orders in the quarter was about $770 million of
orders.
Sun makes network servers that manage corporate networks, engineering workstations and software, such as the Java programming language. Shares fell $7.125 to
$98.25 in Nasdaq trading before its earnings were announced. Wednesday, its shares had run up to an intraday trading high of $115.75.
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