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Sun does the impossible - blackens ink

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Somebody slap someone. Sun Microsystems has turned a profit.

The server maker today posted its best financial results in ages. Sun's second quarter revenue swelled 7 per cent year-over-year to $3.6bn, and it posted a 3 cent per share profit on the back of $126m in net income. Those totals compare to a loss of 7 cents per share in the same period last year and a loss of $223m.

Analysts expected Sun to post 0-1 cents earnings per share.

Sun's totals would have been higher were it not for $58m in stock options charges and $26m in restructuring costs.

"I'm very pleased with our Q2 results," said Jonathan Schwartz, CEO of Sun Microsystems, during a conference call with analysts.

Sun's chipper results turned normally savage analysts into a mildly skeptical bunch. The Wall Street wizards questioned Schwartz more about a new $700m investment from private equity firm KKR than anything else.

(The KKR equity investment includes $350m of convertible senior notes due in 2012, and $350m of convertible senior notes due in 2014. Closing of the investment is scheduled for January 26, 2007, and hinges on standard approvals.)

With close to $5bn in the bank, Sun already has plenty of funds for acquisitions or a few thousand lavish parties.

"We certainly don't need the money," Schwartz said. "It's an opportunistic transaction."

Sun's management likes the idea of playing with $700m and having it around should the right acquisition target appear. It also claims that the relationship with KKR will help Sun tap contacts in the financial services industry. The latter is an odd claim given Sun's strong brand and presence on Wall Street, but it's the claim Sun's brass pushed.

Back to the nuts and bezels, Sun's product revenue rose to $2.3bn from $2.1bn in the same period last year. Most of the growth came from server sales with software revenue coming in pretty flat and storage sales dropping.

Sun sold another $125m worth of UltraSPARC T1-based systems during the quarter. That's a massive year-over-year rise but another slight sequential increase. The company has only shipped $20m of its "Thumper" hybrid storage and server system and hopes that total to rise quite a bit in the quarters to come.

The strong results left investors cheering Sun in the after-hours markets. Shares in the company were up as much as 8 per cent, as of this writing.

Things remain tough for Sun moving forward as one quarter's success immediately makes analysts and investors question if a string of profits can follow. Time for Schwartz to order some proofy pudding. ®

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