Sun Sales Don’t Quite Hit the Mark

    January 13, 2005

Revenues for the Sun’s second quarter were $2.843 billion, a decrease of 1.6 percent as compared with $2.888 billion for the second quarter of fiscal 2004.

Total gross margin as a percent of revenues was 42.3 percent, an increase of 0.5 percentage points as compared with the second quarter of fiscal 2004. Net profit for the second quarter of fiscal 2005 was $19 million or $0.01 per share as compared with a net loss of $125 million or a net loss of $0.04 per share for the second quarter of fiscal 2004.

This Q2 fiscal 2005 profit includes a charge of $24 million for previously announced workforce and real estate restructuring, a $9 million gain on equity investments, and a $6 million benefit for related tax effects. Excluding these amounts, net income for Q2 fiscal 2005 on a non-GAAP basis was $28 million or $0.01 per share as compared with a net loss, on a non-GAAP basis, in Q2 fiscal 2004 of $99 million or a net loss of $0.03 per share.

“The second quarter delivered many positives, including x64 and x86 server unit volume growth, positive cash flow from operations, and stunning market reviews of Solaris 10 OS. It feels good to ring up a modest GAAP profit,” Sun Chairman and CEO Scott McNealy said “Sun has one of its most rock solid product line-ups in history today. Innovation is increasingly marked by business models as much as technology. Sun’s $1 per CPU/hour and the Sun Java Enterprise System are emerging models for recurring revenue. We are clearly reestablishing relevance in key markets.”

Cash generated from operating activities was $52 million for the quarter, and the cash and marketable debt securities balance increased to $7.464 billion.

Steve McGowan, Sun’s CFO and executive vice president, corporate resources, said, “We’re pleased with our progress this quarter toward achieving our key financial goals. On a year-over-year basis, we increased our gross margin percentage, improved productivity by reducing R&D and SG&A expenses by $136 million and continued to generate positive cash flow from operations. This was all accomplished without compromising our product roadmaps.”

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