Sun shows rise in margins as revenues are reduced

23 Jul 2003

Sun Microsystems has posted lower revenues for its fourth quarter and full-year results, the company reported yesterday. The enterprise computer maker showed a year-on-year drop of 13pc with fourth quarter revenues of US$2.98bn. For its full fiscal year, Sun declared revenues of US$11.43bn, which showed a decline of 8.5pc as compared with its financial year 2002 figures of US$12.49bn.

However Sun managed to increase total gross margin as a percentage of revenues in the quarter and for the financial year as a whole. Margins rose to 43.7pc, an increase of 2.4 percentage points compared with the fourth quarter of fiscal 2002. Total gross margin as a percent of revenues was 43.2pc for the financial year 2003, which represents an improvement of 3.9 percentage points over the 2002 fiscal year.

Sun managed to turn a profit during the most recent quarter, albeit a much more modest one compared with the same period last year. Net income for the fourth quarter was US$12m, compared with US$61m for the fourth quarter of fiscal 2002. The company generated US$335m in cash from its operating activities for the quarter, giving it a balance of cash and marketable securities of more than US$5.7bn.

The net loss for fiscal year 2003 was US$2.378bn, although this included a non-cash impairment expense of US$2.125bn related to Sun’s acquisition of Cobalt Networks. For financial year 2002, Sun had reported a loss of US$587m.

Commenting on the results, Steve McGowan, Sun’s chief financial officer said: “We’re pleased we generated US$1bn in cash from operations in fiscal 2003 and ended the year with a cash and marketable securities balance in excess of US$5.7bn. During fiscal 2003, we significantly reduced costs in the company.” McGowan drew attention to the fact that Sun had maintained an investment of almost US$2bn in research and development, which he called “the lifeblood of the company”. Sun also reduced capital expenditures and inventory by almost US$200m each.

Sun’s chairman, president, and CEO Scott McNealy said: “We’ve made solid progress throughout the fiscal year, delivering on key initiatives such as NC03, low cost computing, N1 and Project Orion. At the same time, we’ve driven internal costs down while continuing our investment in R&D. We enter the new fiscal year with an intense focus toward growing revenue, improving profitability and maintaining positive cash flow from operations.”

By Gordon Smith