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Sun Microsystems sales grew just two per cent in Q3, blaming a more competitive market and the downturn in the economy.

The US server and workstation giant recorded revenue of $4.1 billion for the three months ended April 1 2001, around $300 million lower than analysts expectations.

Including charges, net income was $136 million, or four cents per share, compared to $509 million, or 15 cents per share, for the same quarter the previous year.

Excluding charges, pro forma net income fell 43 per cent to $263 million.

Year-on-year, sales dropped 15 per cent in the US, 21 per cent in Japan, 16 per cent in Europe, and 19 per cent in the rest of the world. Sequentially, revenue dropped 33 per cent, 14 per cent, 11 per cent and 16 per cent respectively.

Michael Lehman, Sun CFO, said the results reflected the "sharp decline in capital spending in the information technology sector, principally in the United States, although we did see some moderation of demand in Europe and Asia Pacific".

The competitive environment had also hit gross margins, with discounts offered on systems by competitors much greater than anticipated during the quarter, he said.

For the fourth quarter, Lehman added that the company expected to report "slight" sequential revenue growth, with 15 per cent maximum growth in the next full fiscal year - much of this was forecast to happen in the second half of the year. Earnings growth was also tipped to outstrip that of sales.

The company said its channel inventory was down $200 million and "in its best shape in years".

Sun CEO Scott McNealy commented that "nobody has a clue" where the economy is heading. He said companies needed to be flexible enough to turn aspects of their business on and off quickly, depending on which way the market swung.

Sun said it expected to have the same headcount this time next year as it does now. ®

Related Link

Sun Q3 statement

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