Sun Posts Loss From Acquisition And Restructuring Costs

Revenue for the quarter, which ended on June 30, hit $3.8 billion, up 29 percent compared to the $3.0 billion it reported for the same quarter last year. However, the company lost $301 million, or 9 cents per share, in the fourth quarter, compared to earnings last year of $50 million.

For the fiscal year 2006, Sun's revenue hit $13.1 billion, up 18 percent from the $11.1 billion reported for fiscal year 2005. The company lost $864 million, or 25 cents per share, for the year compared to last year's loss of $107 million, or 3 cents per share.

Revenue for the U.S. alone grew 30 percent compared to $1.5 billion for the quarter.

Revenue and earnings figures included the corresponding figures from StorageTek, which Sun acquired about nine months ago.

The loss included a number of factors, including $86 million in tangible amortization costs of Sun's acquisitions of StorageTek and SeeBeyond, $63 million in stock-based compensation, and a $228 million restructuring charge related to the move Sun made in May to cut costs, including one of its biggest layoffs ever.

Sun CEO Jonathan Schwartz said he was pleased with the results of the fourth quarter, which is the first full quarter since a management shuffle in April put him in the top post.

The results reflect Sun's push to prioritize on growing its revenue, which Schwartz said was tied closely to continued growth of the Internet and of developer platforms related to Sun technology. For instance, he said that Sun already has over 2 million developers worldwide, with strong growth in such countries as China, Russia, and Brazil. And nearly 6 million Solaris licenses have already been downloaded.

"Our business, the delivery of network innovation, is driven by the adoption of the Internet broadly, and our core developer platforms specifically, that being Java and Solaris," Schwartz said. "So independent of whether we're paid up front for that adoption, the more consumers that bank through a browser, the more banks will spend on Sun's core products. The more Java phones there are in the market, the more carriers will invest in Sun infrastructures. The more e-taxes are filed, the more OnStar cars on are on the road, the more Verizon and Vonage grow their subscriber base, the more auctioneers go to eBay, [then] the bigger the data centers they'll all require."

For the fourth quarter, Sun's product revenue grew 31 percent compared to last year to reach $2.5 billion. Of that, computer systems revenue rose 15 percent to hit $1.8 billion, while the data management business grew 103 percent to hit $713 million..

Services revenue grew 25 percent over last year to hit $1.3 billion. This included maintenance revenue of $986 million, up 27 percent, and client solutions and educational services revenue of $318 million, up 18 percent.

Schwartz said a big highlight for Sun was the solid growth in server sales, with the fourth quarter being the second quarter in a row with year-to-year revenue growth. Sales of the company's new UltraSPARC T1000 and T2000 Niagara servers broached the $100 million mark during the quarter. "This is among the fastest product ramps we've ever seen," he said.

Sun's x64-based servers are now on a $500 million annual run rate, while its volume one-way to eight-way server sales grew 21 percent over last year, Schwartz said.

Revenue from Sun's StorageTek acquisition grew in the mid to high single digits, Schwartz said. "We definitely saw in Q4 some of the revenue synergies we anticipated when we announced the acquisition," he said.

Overall software revenue fell 8 percent compared to last year as Sun moved to a subscription pricing model, Schwartz said. However, OEM software sales rose 23 percent over last year, he said.