Sun Microsystems Posts Narrower Loss In Q1

(RTTNews) - Friday, Sun Microsystems Inc. (JAVA | Quote | Chart | News | PowerRating) a computer server and software maker, reported a narrower loss in its first quarter, helped primarily by lower expenses as a result of the company's cost saving measures. Sun Microsystems is being acquired by database giant Oracle (ORCL | Quote | Chart | News | PowerRating), in a deal that has been prolonged for quite some time, primarily due to the European Commission going for an in-depth investigation into the deal.

Sun Microsystems, known for its UltraSPARC processor-based servers, Solaris operating system and and Java technology, was founded in 1982 by Stanford University graduate students Vinod Khosla, Andy Bechtolsheim and Scott McNealy. The name Sun was derived from the initials of Stanford University Network.

The Santa Clara, California-based company reported a net loss for the first quarter of $120 million or $0.16 per share, compared to a loss of $1.68 billion or $2.24 per share in the year-ago quarter.

Net loss for the quarter included purchased in-process research and development, amortization of acquisition related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, impairment of goodwill, gain or loss on equity investments, settlement income and tax effect of non-GAAP adjustments.

Exuding items, the company's non-GAAP net income for the quarter was $15 million or $0.02 per share, compared to non-GAAP net loss of $62 million or $0.08 per share in the same quarter last year.

On average, seven analysts polled by Thomson Reuters expected the company to report a loss of $0.23 per share for the quarter. Analysts estimates typically exclude special items.

Total net revenues for the quarter decreased to $2.24 billion from $2.99 billion in the prior-year quarter. Eight analysts had a revenue consensus of $2.34 billion for the first quarter.

In the immediately preceding quarter, Sun reported a loss in the fourth quarter with a decline in revenues. Net loss for the fourth quarter of 2009 was $147 million or $0.20 per share, compared to a profit of $88 million or $0.11 per share in the prior-year quarter. Fourth-quarter non-GAAP net loss was $21 million or $0.03 per share, compared with a profit of $275 million or $0.35 per share a year earlier. Total net revenues for the quarter dropped 31% to $2.62 billion from $3.78 billion in the comparable period last year.

Among the competitors, software giant Microsoft Corp. (MSFT | Quote | Chart | News | PowerRating) reported a first-quarter profit that declined to $3.574 billion or $0.40 per share from last year, as the company deferred a portion of its revenue related to the Windows 7 Upgrade Option program. Revenues for the quarter were $12.92 billion, down from $15.06 billion in the prior year quarter.

The Armonk, New York-based technology giant International Business Machines Corp. (IBM | Quote | Chart | News | PowerRating) reported that its third quarter profit rose 14% to $3.21 billion or $2.40 per share from last year as a lower tax rate, improved gross margins and tight cost control more than offset a 7% revenue drop. Total revenue for the third quarter fell 7% to $23.57 billion from $25.30 billion in the same quarter last year.

Another runner, Hewlett-Packard Co. (HPQ | Quote | Chart | News | PowerRating) has scheduled to report its quarterly earnings on November 23, with analysts currently expecting the company to post earnings of $1.12 per share on revenues of $29.77 billion.

Sun Microsystems' first-quarter total services revenue decreased 25% to $1.06 billion from $1.23 billion, while total products revenue dipped to $1.19 billion from $1.76 billion in the same quarter prior year. Deferred product revenue increased 15% year-over-year.

Geographically, total North America contributed $981 million to the total revenue, while Europe contributed $675 million for the first quarter revenues. Emerging Markets, which consist of Latin America, Greater China, India, added $311 million, and Asia, Australia and New Zealand region added $276 million to the quarterly revenues.

Operating loss for the quarter narrowed to $100 million from $1.65 billion in the first quarter of 2008. The company's gross margin improved 3.2 percentage points in the quarter to 43.4% from 40.2%.

Research and development expenses decreased 16% to $354 million from $423 million in the first quarter of 2009, primarily due to savings from decreased performance-based compensation, decreased headcount associated with our restructuring efforts and decreases in costs associated with prototype expenses.

Selling, general and administrative expenses decreased 27% to $668 million from $920 million in the same quarter last year, driven by reductions in head count and commissions and other cost control programs.

Sun has never fully recovered from the dotcom bubble burst in the early 2000s, when demand for its servers cratered. After 2001, Sun reported losses for many straight quarters and its much-hyped vision - Network is the Computer- also failed to takeoff as expected.

In 2006, Sun's long-time chief executive officer Scott McNealy stepped down from the post and appointed Jonathan Schwartz as new CEO. This too did not solve Sun's problems and in early 2009,

After flirting with International Business Machines Corp. (IBM | Quote | Chart | News | PowerRating) for more than a month, Sun on April 20 agreed to be bought by Oracle for $9.50 per share in cash, a 425 premium to Sun's closing stock price on the previous trading day. The proposed deal is valued at about $7.4 billion, or $5.6 billion net of Sun's cash and debt. The deal is expected to close this summer.

On July 16, the merger proposal received stockholders approval., and on August 8, the U.S. Department of Justice has approved Oracle's proposed acquisition of Sun and has terminated the antitrust waiting period.

However, the deal is now facing a tough time with the European regulators. Owing to concerns regarding competition, the European Commission has opened an in-depth investigation under the EU Merger Regulation into the deal. The European Commission now has time until January 19, 2010 to take a final decision on whether the concentration would significantly impede effective competition within the European Economic Area or a substantial part of it.

As a result of the regulatory delay, Sun said on October 20, it would slash up to 3,000 employees over the next year. In a regulatory filing, Sun disclosed that it has approved a plan to better align its resources with its strategic business objectives, including reducing its workforce across by up to 3,000 employees over the next 12 months. The job cuts will be effected in North America, EMEA, APAC and Emerging Markets regions, the Santa Clara, California-based company said.

During the first quarter of fiscal year 2010, the company eliminated about 4,350 employees and incurred total related severance and benefit costs of $346 million. The remainder of the estimated costs under the restructuring plan are expected to be incurred through the end of fiscal 2010.

JAVA closed Friday's regular trading system at $8.10, down $0.13 or 1.58%, on a volume of 9.43 million shares. For the past 52 weeks, the stock has traded in a broad range of $2.60 - $9.37, with a three-month average volume of 15.72 million shares.

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