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Sun doused with red ink in Q1

Blames The Meltdown, write-offs

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Server and software maker Sun Microsystems reported its first quarter of fiscal 2009 today, and the red ink was flowing as high-end Sparc server sales dried up at the same time that the company had to book a $1.45bn acquisitions write-off - presumably related to its $4.1bn acquisition of StorageTek a few years back and more recent deals, like the $1bn MySQL acquisition.

The one thing that Sun did not announce in its flurry of numbers - including a much clearer reckoning of its sales by product category than it has ever done in the past - were layoffs above and beyond the restructuring that it already announced this year.

If you don't count the write-off of goodwill - and you want to be generous - you could say that Sun is not doing too badly. But such impairments count to investors and accountants, and Wall Street will no doubt be upset that Sun had an operating loss of $1.65bn and a net loss of $1.68bn, or $2.24 per share. (Like Wall Street is doing any better?)

This time around, Sun booked $2.99bn in total sales in the quarter, down 7.1 per cent. Product sales came in at $1.76bn, down 10.9 per cent, while services sales fell one per cent to $1.23bn. In the year ago quarter, which was not particularly good for Sun, the company had $3.2bn in sales and brought $89m, or 10 cents a share, to the bottom line.

"All in all, it was a tough quarter," explained Jonathan Schwartz, Sun's president and chief executive officer, in a call with financial analysts after the market closed. And whatever he said after that was garbled by a cranky audio stream from Sun's supplier for Webcasts, UStream.tv. Every other sentence was garbled on the two computers I use, with both Internet Explorer and Firefox.

"We believe that tough times create an opportunity for innovation and - bleep blurp bloop," Schwartz went on to say. He said that Sun had experienced a slowdown in North America, Europe, and Asia/Pacific, and that the traditional midrange and high-end server business had a 27 per cent sales decline as CIOs put off spending.

But x64 server sales rose by four per cent and blade server sales (across Sparc and x64 architectures) were up by 32 per cent in the quarter, which was encouraging to him. Also encouraging were sales bumps in Germany, Spain, and Portugal, but the North American shortfall, driven mostly by skittishness at financial services companies where Sun does - or at least did - a lot of its business.

Chief financial officer Michael Lehman, through all the bleeps and blurps, appeared to say that Sun was experiencing a challenging environment and made it clear (well, sort of) that Sun was dissatisfied with its results for Q1. Lehman then went on to say that given the current economic climate, Sun would not be providing any revenue or profit guidance for the rest of 2009. Wall Street model makers, you are on your own.

Luckily, Sun has helped you a bit with your homework, as you can see on page six of its financial presentation. The table shows the past nine quarters of Sun's business broken down by server, storage, software, and services categories. Revenue figures are presented as those billed during the quarter, with reserves and other adjustments taken out. Schwartz and Lehman promised more transparency in the Sun financial reports last year, and they delivered.

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