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Sun's Q4 loss/sales spike combo stuns Wall Street

Speechless

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Call him "Mixed Bag Schwartz." Sun Microsystems' new CEO hit investors with a large net loss but also a surprising, healthy spike in sales, as the company reported fourth quarter results today.

Sun posted a net loss of $301m or a loss of 9 cents per share, during the fourth quarter. Those figures compare to a profit of $50m or 1 cent per share in the same period last year. A number of charges contributed to the reversal in Sun's fortunes, including costs for layoffs, taxes and stock options.

Investors want nothing more than for Sun to stay in the black for a few quarters in a row, so the fourth quarter loss hurts. Overall, however, Sun's sales figures look healthier than they have in years.

Sun's fourth quarter revenue jumped 29 per cent to $3.8bn. The year-over-year revenue growth was aided by some of Sun's large acquisitions, but the company demonstrated short-term gains as well. For example, the fourth quarter revenue was 20 per cent higher than third quarter revenue, marking Sun's strongest sequential growth from Q3 to Q4 since the glory days of 2000.

"We have increasing confidence in the stability of our business," said CEO Jonathan Schwartz, during his first post-McNealy era conference call with the financial analysts.

In a most unusual occurrence, Sun's quarter seemed to leave the financial analysts speechless. They literally ran out of questions even though quite a few minutes remained on the Q4 conference call with Sun executives.

That's quite the change from the past three or so years, where the Wall Street crowd has turned Sun's earnings calls into a type of "kick 'em while they're down" sport. Merrill Lynch's star analyst Steve Milunovich made a career of knocking Sun during the calls before he lost a career as a hedge fund manager.

Most astounding to the analysts was Sun's claim that it saw sales increasing near the end of the fourth quarter. The optimistic message runs in stark contrast to recent warnings dished out by IBM and Dell about slowing corporate purchases in June and July.

"We saw no soft close in June," Schwartz said. "If anything, we saw things strengthening near the end of the quarter."

The increasing sales have left Sun feeling "optimistic" and like it has an edge over rivals, Schwartz said.

Looking back at the fourth quarter, Sun's product sales increased to $2.5bn from $1.9bn last year. Services revenue jumped as well to $1.3bn from $1.0bn last year.

Sun noted strong sales of its x86 systems. But, while impressive, Sun's x86 server growth rate has slowed dramatically. The business grew 53 per cent year-over-year in the fourth quarter as compared to 81 per cent in Q3, 93 per cent in Q2 and 109 per cent in Q1.

Schwartz also highlighted sales of the UltraSPARC T1-based boxes.

"Our UltraSPARC T1 volume ramp has been superb - faster than any product I can remember, with Q4 being our first $100m quarter," he told The Register. "That's especially gratifying in comparison to some of our peers, whose systems we're both consolidating, as well as leveraging as platforms for Solaris."

But it wasn't all rival bashing for Schwartz. He's claiming that HP and Dell boxes are proving some of the most popular for Solaris x86 these days.

"We don't see our erstwhile hardware competitors as the enemy," he told us. "Now, we look at them as channel partners."

Investors pushed Sun shares slightly higher in the after-hours market to $4.14 per share at the time of this report. ®

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