This summary is based on the first quarter fiscal 2009 earnings call conducted by Sun Microsystems Inc. (JAVA) on October 30, 2008.
Management:
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President and CEO: Jonathan Schwartz
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CFO and EVP, Corporate Resources: Mike Lehman
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VP, Corporate Treasurer: Ron Pasek
Key Investors Issues
- Total revenues were $2.990 billion, a decrease of 7.1% from $3.219 billion in 2007.
- The firm realised a net loss of $1.677 billion or a loss per share of $2.24 compared with net income of $89 million or 10 cents a share in the prior year.
- The company repurchased 14.7 million shares for $130 million.
First Quarter Highlights
Total revenues were $2.990 billion, a decrease of 7.1% from $3.219 billion in 2007 due to the challenging economic climate with softness in demand across North America, Europe and Asia Pacific.
- Products revenue totaled $1.764 billion, a decrease of 11% year-over-year and computer systems revenue was $1.257 billion, a decrease of 15% year-over-year.
- Storage revenue was $507 million, an increase of 0.4% year-over-year and services revenue totaled $1.226 billion, a decrease of 1% year-over-year.
- Support services revenue was $963 million, a decrease of 1.6% year-over-year while Professional and educational services revenue totaled $263 million, an increase of 1.2% year-over-year.
- Gross margin was down to 35.2% from 42.5% in the prior quarter due to pricing and discounting and the relationship of those actions to cost reductions.
Total R&D and SG&A were $1.343 billion, a decrease of $42 million year-over-year.
- The firm realised a net loss of $1.677 billion or a loss per share of $2.24 compared ith net income of $89 million or 10 cents a share in the prior year on weaker revenues.
- Cash and marketable debt securities were $3.121 billion, and the firm generated positive cash flow from operations of $148 million.
- The company repurchased 14.7 million shares for $130 million and now has $906 million remaining in the $1 billion share repurchase program.
Operational Highlights:
- Traditional exposure to high end enterprise systems across the subset of the customer base has made Sun more vulnerable to the current economic slowdown than of some the more diversified peers.
- The traditional SPARC Enterprise business, that is the traditional high-end and mid range data center business, slowed significantly and was down 27% year-over-year.
- On the storage front, storage had a relatively strong quarter despite headwinds from the overall economic climate and its association with the traditional enterprise systems.
- The Solaris-based Chip Multi Threading System line-up grew 83% year-over-year as customers continued to demand the nearly 10,000 applications available for Solaris 10, while enjoying integrated virtualization and exceptional scalability and power efficiency.
This growth demonstrates popularizing Solaris in the open source community and continuing the long-term investment focus in microelectronics is paying off.
- In addition, Intel and AMD based x64 systems overall grew 4% and Blade systems, which are inclusive of Intel, AMD and our SPARC platforms grew 32% in the quarter year-over-year.
- On the Software front, Software Licensing and Subscription businesses showed growth across the board, with Java, MySQL, infrastructure as well as Solaris management and virtualization, all growing in double digits.
- Sun expects strong growth in Open Storage as the adoption of ZFS continues and the need for open systems becomes ever more critical for customers seeking better performance at a lower price than traditional network attached storage.
Regional Performance:
- The North America region was the weakest in the quarter and was down nearly 13% from last year.
- Telecommunications and government were roughly flat from last year, so a significant majority of the shortfall in North America was directly attributable to the troubled financial services sector.
The Europe region was down 8% year-over-year with the largest decline in the UK of over 18%.
- In Europe, Sun is experiencing a slowdown, most notably from financial services customers and is also experiencing a shift from higher end SPARC systems to volume systems in the current sales cycle.
- The Asia Pacific region, which now includes Japan, Korea and Australia primarily and by the way, excludes China and India, which are part of the emerging markets region, was down 4% year-over-year.
Key questions and answers from the first quarter earnings call conducted by Sun Microsystems Inc. (JAVA) on October 30, 2008.
David Wong (Wachovia):
When you said you saw a shift of high-end spark to volume systems, are you referring to volume Niagara-based system or do you mean x86?
Jonathan Schwartz: In general, companies running the Niagara platforms tend to be more focused on very high scale and power efficiency and those running x64 systems were a little more focused on kind of single thread performance.
So, overall, I am not sure it''s as much frankly as a shift from high-end to volume systems as a slowing of the high-end which, by definition, makes it look like the low-end is going to grow. I think the low-end was kind of be growing anyway.
