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Sun Microsystems disappointed analysts and investors with a third quarter loss and lower revenue. Weak sales of storage systems and high-end servers hurt Sun during the period, executives said.

Sun posted revenue of $2.63bn, which is 1 per cent less than the $2.65bn reported last year. On the plus side, Sun managed to shrink its net loss by a massive margin. It reported a net loss of $9m or 0 cents per share. (The net loss included several favorable items such as $54m in extra Microsoft settlement income and $92m in tax benefits.) Excluding charges, Sun reported a net loss of $61m or 2 cents per share. This compares to a net loss of $260m in the same quarter last year when Sun took a large hit for job cuts.

Sun's CEO Scott McNealy tried to promote a longer term view on the company's financial status.

"We made good progress in the third fiscal quarter, but more importantly we're seeing a marked improvement over the first nine months of fiscal 2004," he said. "Break even is a huge move forward from the loss we experienced a year ago. We've made over a $1 billion improvement in net income on a year to date three quarter comparison,"

A number of analysts, however, slammed Sun's inability to drive revenue higher despite a multi-year effort to do so. They questioned why Sun has not made more job cuts and why management appeared complacent with lackluster results.

Sun admitted to shortfalls with its high-end and midrange storage sales and also said that high-end servers did not sell as well as hoped. It also suffered from a 5 per cent year-over-year drop in US sales. The company did see strong growth in its mid-range and low-end Sparc servers along with its Opteron-based systems.

Overall, Sun's product revenue dipped to just $1.68 billion in the third quarter, which compares to $1.71bn in the same period last year. Services revenue rose slightly to $944m this quarter as compared to $940m in 2004.

"Clearly, it ain't like it was during the bubble," McNealy acknowledged.

The Sun chief tried to dispel any notion that the company was satisfied with a quarterly loss, saying no one was "content or complacent." Still, Sun is not going to cut jobs just for the sake of profit at this juncture, McNealy said. It believes that new UltraSparc 4+ chips, new Opteron servers and the release of Solaris 10 will drive business and require a significant sales, marketing and R&D staff.

McNealy also urged analysts and investors to be patient, as customers are starting to buy into Sun's new product strategy.

"The pipeline of interesting conversations is up," he said.

One can only hope this wasn't a reference to the quantity of podcasts being pumped out of Sun, but rather a statement about customer chatter. ®

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