Feeds

Sun erases fourth quarter profit with $1 billion charge

First quarter looking grim

  • alert
  • submit to reddit

7 Elements of Radically Simple OS Migration

Upon further review, Sun Microsystems has altered its fourth quarter financial figures to show a net loss of $1.04 billion where it once posted a $12 million net gain.

This rather drastic shift comes as a result of a $1.05 billion non-cash charge in its fourth quarter, which ended June 30. The charge was taken "to increase a valuation allowance for its net deferred tax assets in accordance with the Statement of Financial Accounting Standards (SAFS) No. 109," Sun said in a statement. Basically, Sun's first fiscal quarter, which just ended, came in worse than expected, so the company has made an adjustment to offset some of the loss.

Sun had reported a $12 million profit in the fourth quarter of 2003, but this now becomes a $1.04 billion or $0.32 per share loss.

The Sun statement explaining the accounting move was written in what you might call "things have gone terribly wrong speak," which made it tough to understand. Thankfully, an industry analyst provided a clear explanation over on TheStreet.com.

"You're only allowed to record the benefit from a deferred tax asset if you're more than 50% confident that you will have taxable assets in the future that are sufficient to absorb it," Robert Willens, an accounting and tax analyst at Lehman told TheStreet.com. "What they're telling you is that their level of confidence in their ability to generate taxable income in the future has taken a turn for the worse; their level of confidence has dipped below the 50% line. It's clearly not a positive development. The larger the valuation allowance, the lower your confidence level in your ability to generate any sort of income."

Sun is expecting to post a first quarter loss of between $0.07 and $0.10 per share. Sun said the period has been "a particularly difficult quarter for the company due in part to intense market and competitive dynamics." Analysts were looking for Sun to report a loss of $0.02 per share for the quarter.

Sun has been struggling to reach profitability over the last couple of years, as the company has been hit hard by a slowdown in hardware spending. In recent quarters, main rival IBM has managed to scoop up some of Sun's share in the prized market for Unix servers. In addition, analysts charge that Linux servers pose a threat to Sun's Unix business.

To help offset the decline in sales, Sun this month announced that it would layoff 1,000 workers.

In addition to cost-cutting measures, Sun is trying to boost software sales with its new Java Enterprise Systems and Java Desktop System software packages. Both sets of software are priced well below what rivals offer and could spark growth for the company.

The earnings revision, however, comes as a major blow. Sun has wiped out one of its few profitable quarters in recent memory. The company is also saying that things are looking worse than expected. The first fiscal quarter report is due out in mid-October.

Investors punished Sun shares in after-hours trading, following the earnings announcement. Sun's stock had fallen 8.29 percent to $3.54 at the time of this report. ®

Best practices for enterprise data

More from The Register

next story
Microsoft's Euro cloud darkens: US FEDS can dig into foreign servers
They're not emails, they're business records, says court
Sysadmin Day 2014: Quick, there's still time to get the beers in
He walked over the broken glass, killed the thugs... and er... reconnected the cables*
VMware builds product executables on 50 Mac Minis
And goes to the Genius Bar for support
Multipath TCP speeds up the internet so much that security breaks
Black Hat research says proposed protocol will bork network probes, flummox firewalls
Auntie remains MYSTIFIED by that weekend BBC iPlayer and website outage
Still doing 'forensics' on the caching layer – Beeb digi wonk
Microsoft says 'weird things' can happen during Windows Server 2003 migrations
Fix coming for bug that makes Kerberos croak when you run two domain controllers
Cisco says network virtualisation won't pay off everywhere
Another sign of strain in the Borg/VMware relationship?
prev story

Whitepapers

7 Elements of Radically Simple OS Migration
Avoid the typical headaches of OS migration during your next project by learning about 7 elements of radically simple OS migration.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Solving today's distributed Big Data backup challenges
Enable IT efficiency and allow a firm to access and reuse corporate information for competitive advantage, ultimately changing business outcomes.
A new approach to endpoint data protection
What is the best way to ensure comprehensive visibility, management, and control of information on both company-owned and employee-owned devices?