Sun Microsystems beat Wall Street expectations on Monday by posting $329 million in earnings for the company's fiscal fourth quarter versus a loss of $301 million during the year-earlier period. Revenue at the company increased slightly over the year-ago period to $3.835 billion.
Sun's third straight quarter of profitability was due in part to a 25 percent cut in the company's operating expenses during the period, a scaling back that had worried some analysts.
But Sun CEO Jonathan Schwartz responded to the concerns in a conference call to analysts, saying, "It is important to note that we achieved these reductions while increasing our focus and commitment to the R&D pipelines and roadmaps that are at the core of our business."
Schwartz also said that Sun would continue to streamline its operations in any way it can, while still building a foundation that will support the company's long-term goals. "We are by no means done here and rest assured we view our progress as the first of many steps," he said.
Customers See I.T. as a Weapon
Schwartz said he expects Sun to shine, moving forward. "Our customers tend to see I.T. as a weapon and tend to use it as a vehicle to differentiate themselves," Schwartz explained. "They are looking to buy more technology at this point and not to invest in less."
Schwartz said Sun's customers will be looking for vendors that not only "know how to scale" in networking, systems, and storage, but also have a "full compliment of offerings that actually make it happen."
Schwartz added that Sun expects to attract customer interest by offering what he characterized as the "strongest product roadmap in the history of the company," driven by the launch of innovative new technologies such as the company's latest Galaxy and Niagara processors for server applications as well as new virtualization features in the company's Solaris 10 operating system for I.T. applications.
Schwartz pointed out that Sun is beginning to see the real impact of virtualization, which gives its "customers the ability to buy fewer but more richly configured systems and storage" on the company's Sparc and x64 processing platforms. He emphasized that "all this is achieved without the license fees required by other operating systems."
Capitalizing on Growing Demand
During Sun's earnings conference call, Goldman Sachs analyst Laura Conigliaro asked what Sun intended to so about the continuing weakness in the company's storage business, which saw revenue fall by 10 percent, year-over-year.
Schwartz responded by saying that company executives are "aware of the execution challenges as well as the strategic challenges" but feel like Sun has the right foundation to "really march forward."
In terms of tape archiving, Schwartz said, Sun has been running its storage business "somewhat as expected" as a result of the company's acquisition last year of StorageTek, which "continues to play out very well."
Meanwhile, he added, the low end of Sun's storage business is in the process of being completely redefined by the types of network-attached storage offerings and data-warehousing appliances that the company is now building with Solaris.