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Street swoons as McNealy delivers in style

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The smart choice: opportunity from uncertainty

Analysis Wall Street financial analysts are not renowned for being very kind about results, but during Sun's analyst call last night for its Q4 results, their praise was unprecedented in our experience. "Breathtaking numbers" was the commonest comment, with "an unbelievable quarter" and "spectacular" being runners up. So what had excited these dour destroyers of many a promising company?

Sun's revenue for Q4 broke the $5 billion barrier for the first time, and was up 42 per cent on the year-earlier quarter. Net income was $720 million, up 82 per cent, with earnings per share up 75 per cent to 42 cents, which was 27 per cent better than what the Street was expecting. There was in fact income of $96 million from the sale of investments that mellows this result somewhat. Revenue was up in all geographies for the quarter, compared with the year earlier quarters, and for the financial year as a whole. Revenue has increased through the financial year, with the quarters showing growth of 25 per cent, 27 per cent, 36 per cent and 42 per cent (excluding exceptional items).

For once, CEO Scott McNealy was somewhat subdued, observing that "the numbers tell the story. In every important metric, including market share gains, we had an incredible quarter. In just the last few years, our market share has risen from the number four open system server provider to an undisputed number one. Our belief is that everything with a digital or electronic heartbeat will one day be connected to the Internet, and often to Sun servers."

Around half Sun's revenue was from its server sales, and it would seem that brick-to-click businesses that can afford to go first class often choose Sun's kit. McNealy said in a perceptive aside that it was easier to add clicks than bricks, with the implication that established brick businesses are more likely to survive (and carry on buying Sun kit) than click businesses trying to add bricks, as they will experience brick-growing pains. Economy class new clickers are probably more likely to choose Windows, unless they work through a service provider, as is very often the case. Solaris for Intel is also doing well, Sun said, and appears to be gaining some market share. No wonder Microsoft sees Sun as enemy number one.

Sun has also managed to reach a friendly accommodation with Linux, which it dubs "another Unix." Sun has Linux extensions in Solaris, as well as a version of StarOffice for Linux. It is beginning to look as though StarOffice will achieve the distribution by OEMs that WordPerfect has failed to achieve in recent years, judging by the list of OEMs that Sun said would be taking it. This is somewhat strange since there is so little user experience with StarOffice compared with WordPerfect (Editor's note: Graham Lea = WordPerfect Die-Hard).

What the results demonstrate very clearly is that the only significant Microsoft-free company has been achieving greater relative success that Microsoft. With its $1.8 billion of backlog orders from Q4, Sun is well poised as it enters its new financial year, and as McNealy put it, with 0 to 20 per cent of US business data web-enabled - and less elsewhere - the upside potential is enormous. He also thought that other companies were taking business from Sun just because Sun was unable to keep up with demand. CFO Mike Lehman said he was looking for 30 per cent revenue growth in the current fiscal year.

McNealy did have the odd one-liner: in a dig at the Windows.NET conceptware, he said that "The Sun.net platform is ready today and shipping". ®

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