Sun sticks to its guns
Chief financial officer reiterates financial targets but says order rates in the next few weeks will be key.
March 7, 2002: 6:57 p.m. ET
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NEW YORK (CNN/Money) - A top executive of Sun Microsystems on Thursday said the company remains on track to meet its financial goals for the current quarter, but cautioned that order rates during the next several weeks will be key to doing so.
Mike Lehman, Sun's chief financial officer, said the company still expects a slight rise in fiscal third-quarter revenue over the $3.1 billion it logged in the second quarter. He also said the company expects gross margins to improve and that the company "expects to make progress" toward its goal of returning to profitability in the fiscal fourth-quarter, ending in June.
Those projections were identical to the ones the company made going into the quarter, which ends March 30.
"There is no change from what we said earlier," Lehman told analysts during a teleconference Thursday evening.
"However, this is dependent on order rates in the last few weeks of March," Lehman added. Typically, more than 50 percent of Sun's revenue in the fiscal third-quarter is generated during the last four weeks, he said.
"The risk is more that the orders will come in too late in the quarter to be turned around and revenue recognized," Lehman said.
By First Call's count, analysts generally expect Sun to lose 2 cents per share in the third quarter on revenue of about $3.2 billion.
Sun, a leading supplier of Unix servers -- large computer systems used for everything from hosting Web sites to executing bank transactions -- was one of the high-flyers on Wall Street during the dot.com boom, supplying much of the hardware used to build out the infrastructure for the hundreds of Internet companies that materialized in the late 1990s.
But the company's fortunes took a turn for the worse in the wake of the dot.com meltdown. It has since dropped its "we put the dot in dotcom" slogan and has been losing money for the past three quarters amid a protracted slowdown in information technology spending by large corporations.
Compounding Sun's (SUNW: Research, Estimates) problems caused by the general slowdown in IT spending is the growing competitive threat in the server market from the likes of IBM. Big Blue has been relentless in its efforts to unseat Sun as the leader in the market for Unix servers -- so named for the operating system they run -- substantially stepping up its efforts with aggressively priced systems.
Sun also has been facing more competition on the low end from Dell Computer and others who sell low-cost servers using Intel-based processors that are capable of running the increasingly popular Linux operating system.
Until recently, Sun had held fast to its proprietary hardware and software. But recently the company acknowledged the growing popularity of Linux-based systems and said it will begin selling its own Intel-based hardware equipped with its own version of Linux.
Linux is an "open source" operating system, meaning it is open to modifications and freely distributed among developers. Although it originally had a cult following of technically sophisticated users, it has been making substantial headway into the mainstream of corporate computing because of its low cost and the flexibility it offers IT managers.
"I think we all know that overall IT spending is still not improving across the board, so the competitors are going after the deals, and the pricing environment is still pretty nasty out there, Lehman said.
On a separate note, Lehman said Sun stands to benefit from the proposed merger of Hewlett-Packard and Compaq, whose proposed $22 billion union has won regulatory approval and is set to go before shareholders later this month.
Critics of the deal have argued that concerns about integrating the two large companies could cause some customer defections, a scenario Lehman said would benefit Sun.
He also said the uncertainty surrounding the merger has already enabled Sun to open a dialogue with potential customers it might not have been able to reach without such a proposed deal.
"We're able to get an audience more and more these days at places where those companies have an installed base," Lehman said. "It's a very real opportunity for customers to step back and say, 'Who do I want to partner with that will be there for the long term?'" 
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