Sun Profits in Q4 Thanks to Microsoft Settlement.By Timothy Prickett Morgan
When Sun Microsystems Sun Microsystems, Inc. (NASDAQ: JAVA) is an American vendor of computers, computer components, computer software, and information-technology services, founded on 24 February 1982. Inc said at the beginning of the year that it wanted to be profitable by the end of fiscal 2004, no one could have predicted the way in which it happened. Sun did indeed report a profit of $795m for the fourth quarter after booking $1.6bn of its $1.95bn settlement with Microsoft Corp, but the company is still in the midst Adv. 1. in the midst - the middle or central part or point; "in the midst of the forest"; "could he walk out in the midst of his piece?"
midmost of a number of product transitions, and Sun's prospects for profits and revenue growth in fiscal 2005 are a big question mark.
This is the sort of thing that makes investors uncomfortable, but Sun is not as worried about investors as it is customers these days - and rightly so. The subscription-based pricing model being championed by new president and chief operating officer Chief Operating Officer (COO)
The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. , Jonathan Schwartz Jonathan Schwartz or Jon Schwartz is the name of several persons:
Who knows what affect Sun's transitioning from product sales on a quarterly basis to subscriptions spread out over the course of a year or more will have on sales or profits, but what seems clear is that what Sun wants Wall Street to keep its eye on is the amount of deferred revenue that the company has booked. This is exactly the trick that former chairman Lou Gerstner did when he took over IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) Corp more than a decade ago and got everyone to focus on the Global Services business and its quarterly bookings and growing backlog of orders as sales for servers and other products moved a bit chaotically.
In the fiscal fourth quarter ended June 30, Sun's total sales were $3.11bn, up 4.2%. Steve McGowan, the company's chief financial officer, said that Sun had product sales of $2.07bn in the quarter, up 3.1% from the same quarter a year ago. Sun said that $1.64bn of that came from computer product sales, and that $427m of that came from Network Systems, which is what Sun calls entry servers based on its Sparc and x86 architectures.
McGowan said that Sun's sales across entry, midrange midrange Epidemiology The halfway point or midpoint in a set of observations; for most data, MR is calculated as the sum of the smallest observation and the largest observation, divided by 2; for age data, one is added to the numerator; a midrange is usually , and enterprise Sparc server lines were all up, and that machines using its new dual-core UltraSparc-IV processors comprised 30% of Sparc server sales in the quarter. As the transition to these new chips continues, McGowan said that Sun expected the UltraSparc-IV processors to account for about half of server sales in the first quarter of fiscal 2005. This, he said, was slightly ahead of plan. He also said that while Sun's fledgling x86 server business, which is dominated by its Opteron-based Sun Fire V20z server, did not yet represent a measurable revenue stream, sales more than doubled in the quarter.
Scott McNealy Scott McNealy (born November 13, 1954 in Columbus, Indiana) was the Chairman of Sun Microsystems, the computer technology company he co-founded in 1982 along with Vinod Khosla, Bill Joy, and Andy Bechtolsheim. , Sun's chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , reiterated that the company was focused on driving unit volumes, which have traditionally been the forerunner of profits for Sun. "This is a company that is in control," he said in a conference call with Wall Street analysts. "Volume is a leading economic indicator leading economic indicator
An economic or a financial variable that tends to move ahead of and in the same direction as general economic activity. Compare lagging economic indicator. See also index of leading economic indicators. , and it is what will drive future revenue at the company." To that end, Sun pushed up x86 server sales by 327% in the quarter, and overall shipments (including both x86 and Sparc servers) were up 46% in the quarter.
All of Sun's executives were excited that the company booked its first quarter of services sales of more than $1bn, with $1.044bn in sales. McGowan said that Sun had some 771,000 systems under maintenance, which represented about 48% of the Sun installed base, an increase in 8% in the past year. The Sun executive team was similarly thrilled to report that subscriptions to the Java Enterprise System software stack (1) A stack that is implemented in memory rather than in hardware registers. See stack.
(2) A generic reference to a set of system programs or a set of application programs that form a complete system. See stack. grew by 74% sequentially in the quarter, and that the company now has 303,100 end users licensed for the software stack, which includes Solaris and a whole slew of middleware. While these are great growth numbers, Sun needs an installed seat count that is two orders of magnitude larger to be a player. That said, this is a start, and such growth could, as McNealy is fond of saying, create a positive feedback loop. Such a loop is, after all, how Sun came to dominate the Internet and then the dot-com era.
Sun has deferred another $350m payment from Microsoft as it awaits some advice from the Securities and Exchange Commission on how to treat it. Sun's CFO See Chief Financial Officer. could be confused because the Microsoft settlement is complicated, but then again, it could be that Sun has decided to be cautious about how it books this money so it can cleverly save that unearned revenue Unearned Revenue
When an individual or company receives money for a service or product that has yet to be fulfilled.
For example, prepayment on a lease contract - the revenue is a liability until it has been earned.
See also: Earned Income, Passive Income to apply in a quarter with a rainy day or two. By booking the $1.6bn in the fiscal fourth quarter, Sun was able to book a $795m profit, and that was enough of a contrast with the $1.04bn loss it had in last year's fourth quarter to make Wall Street happy. But without the Microsoft money Microsoft Money is Microsoft's personal finance software for computers using the Microsoft Windows operating system. A version is also available for Windows Mobile (available for Money versions 2000-2006, and up to, but not including Windows Mobile 5.0). , Sun only generated $276m in positive cash flow, and would very likely not have booked a profit in the quarter.
For the full fiscal year, Sun's sales were $11.185bn, down 2.1%. Product sales were $7.355bn, down 5.6%. Services revenues for fiscal 2004 were $3.83bn, up 5.2%. Sun booked a loss of $376m for the full year (and that extra $350m would not have wiped it out), which was a lot better than the $3.43bn loss it booked in fiscal 2003.
Going forward, Sun's executive team did not provide any guidance on what fiscal 2005 would be, except to say that the company would make modest cuts in R&D spending and continue to drive out sales and other costs. McNealy said that the company's compensation and bonus plan for fiscal 2005 was oriented on the basis that Sun would have revenue growth, strong cash flow from operations Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , and profits. Exactly what they might be, McNealy and his team are just not going to say. Given the tumult Sun has been through, this is perhaps the wisest course of action.