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Second quarter loss for Sun

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Poor planning combined with acquisition and restructuring costs have pushed Sun Microsystems into its second loss for the fiscal year.

Sun reported a $223m net loss, down from a $4m profit, on revenue that grew 17 per cent to $3.337bn for the three months to December 25, 2005. Sun recorded a loss of $0.07 per share compared to break-even last year. The figures build on Sun's first quarter's losses, which came in at $123m.

Sun's chief executive told Wall Street on Tuesday that lead times for servers running the UltraSPARC IV+ machines had been "longer than we expected" and had equated to a product back log worth $100m during the second quarter of Sun's fiscal 2006.

"Our new year resolution is not to underestimate demand of new products," McNealy joked. "We hope to get caught back up by the end of the next quarter."

Unfortunately for McNealy, that much needed server revenue occurred as Sun simultaneously absorbed $145m of purchasing price accounting adjustments and $10m in restructuring charges associated with last year's acquisitions of both SeeBeyond Technologies and StorageTek.

Frustrated by Sun's poor sales and capacity planning, Wall Street analysts grilled McNealy over whether the company expects the UltraSPARC IV+ backlog will translate into a third-quarter sales fillip. He initially demurred, saying Sun was "not in a position to speculate" about the ability to translate demand into sales, but finally promised a straight translation of order to sales with "1:1 book to build."

In a further unsettling twist for analysts, the impact of SeeBeyond and StorageTek will continue to be felt on quarterly results into the near future. Sun expects to write down $75m per quarter for the next three and a half years.

It remains unclear, meanwhile, how much SeeBeyond or StorageTek will help Sun's boost its revenue. The company Tuesday reported $368m in product revenue from StorageTek during the quarter, but did not break out income from SeeBeyond as it was "not material to the quarter's numbers".

McNealy said Sun expects to monetize its open source and "free" software strategy during the coming quarter through support contracts.

Elsewhere in the second quarter, revenue from the sale of Sun's servers, workstations, data storage and other hardware increased 14.5 per cent to $2.11bn, while services revenue rose 22.7 per cent to $1.23bn. ®

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