Sun Sees Yearly Revenue, Profit Up

The company also saw a strong profit for the fourth quarter on top of a slight increase in revenue.

Sun on Monday reported the results for its fiscal year 2007, which ended June 30.

For the year, Sun reported revenue of $13.9 billion, up 6.2 percent over the $13.1 billion it reported for fiscal year 2006. Profit for the year was $473 million, up from the loss of $864 it reported last year.

Fourth quarter revenue was $3.835 billion, barely up from the $3.828 billion it reported last year. However, the company enjoyed a profit for the quarter of $329 million, up from the loss of $301 million it reported in the fourth quarter of 2006.

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The flat fourth quarter revenue didn't bother Mark Teter, CTO of Advanced Systems Group, a Denver-based Sun solution provider.

"The report brought a smile to my face," Teter said. "Do you know how long we've waited for good news?"

Teter said he was not surprised to see the strong profit growth, as Sun as been streamlining its manufacturing operations over the past year or so.

However, Teter said, he is very bullish on Sun for fiscal year 2008.

"Sun has a lot of products that will ship the second half of this [calendar] year that will hopefully drive up revenue," he said. "New blade servers, Honeycomb, new Niagara-based servers, and the new M-series servers. We haven't seen the results of those products yet, and they are significant enhancements to Sun's product line."

Sun re-entered the blade server business a year ago after a long absence. The company in early June updated its blade server line with the Sun Blade 6000 Modular System, which allows solution providers and their customers to run blade servers with UltraSPARC T1, Intel and AMD processors and Solaris, Windows, and Linux operating systems in one chassis.

"Honeycomb" is the codename for the Sun StorageTek 5800 application-aware archiving solution which the company unveiled about a year ago.

The M-series of SPARC processor-based servers were the result of a joint development project by Sun and Fujitsu Siemens Computers, and were introduced in April.

While overall revenue in most of the world was up an average of 2 percent from 2006 to 2007, it fell 2 percent in the U.S., according to Sun. The US accounted for about 41 percent of Sun's overall revenue in the fourth quarter, down from 42 percent during the same time last year.

For all of fiscal year 2007, Sun's server business did well. Revenue for its Niagara processor-based servers, including the Sun Fire T1000 and T2000, was up 225 percent over 2006, while sales of its Sun Fire x64-based series of AMD servers was up 39 percent and its Netra carrier-grade servers revenue was up 38 percent, according to Sun. The company also sold about $55 million worth of blade servers in the year since they started shipping.

Despite the increase in server revenue, however, total server shipments actually fell in the fourth quarter about 15 percent compared to last year. Fourth quarter x64-based server shipments also fell by a more modest 4 percent, Sun said.

On the software side, Sun currently has shipped nearly 9 million registered licenses for its Solaris 10 operating system, up 17 percent from the third quarter of the year. It counts over 5,500 applications ported to Solaris 10, up from under 3,000 a year ago. The company also has just over 1.7 million Java Enterprise System subscribers, up from 1.2 million in the fourth quarter of last year.

In a statement, Jonathan Schwartz, Sun's president and CEO, said, "With a solid strategy and consistent execution, we delivered on our commitment to achieve at least 4 percent operating margin in the fourth quarter. This milestone marks significant progress toward our longer-term growth plan of at least 10 percent operating margin for the full fiscal year 2009. The Solaris 10 Operating System continues to fuel opportunity for us and our partners, allowing customers to leverage built-in virtualization to harvest more value from their datacenters, without the unnecessary expense of separate software licenses."

Josh M. Farina, analyst at Technology Business Research, a Hampton, N.H.-based analyst firm, wrote on Monday that Sun's server unit shipments and continued storage challenges were the main cause of the quarter's flat revenue growth. "Sun's revenue growth for the quarter of 0.2% was the weakest in nine quarters, and continues on its declining path since peaking in 2Q06," Farina wrote. "Admittedly, Sun management said revenue growth was not as strong as they would have liked to have seen. Despite weak revenue growth in the quarter, revenue of $3.84 billion was in line with analysts' estimates. TBR believes Sun is increasingly reliant on server shipments to fuel the company's revenue growth as it expands its open-source software model, Sun's storage business continues to face challenges and services are increasingly tied to system sales."

On the plus side, Farina wrote that, with 8.5 percent operating margin for its fiscal fourth quarter, Sun met its goal of reaching at least 4% operating margin in the last quarter of its fiscal 2007 year. The company also cut its operating expense margin to 38.8%, the lowest level in over six years. "Sun has had one of the highest operating expense margins in the industry, on average between 45% - 50% of revenue, a point that has frequently been cited by analysts as one of Sun's major weaknesses in achieving sustainable operating profit," Farina wrote.