This summary is based on the second quarter fiscal 2008 earnings call conducted by Sun Microsystems Inc. (JAVA) on January 24, 2008.
Management:
Vice President of Investor Relations: Bret Schaefer
Chief Executive Officer and President: Jonathan Schwartz
Chief Financial Officer and Executive Vice President of Corporate Resources: Michael Lehman
Key Investors Issues
- EPS were 31 cents a share compared to 15 cents a share last year.
- Profit was $260 million compared to $133 million last year.
- Revenue was $3.62 billion compared to sales of $3.57 billion a year ago.
Second Quarter Highlights
Total revenue was $3.615 billion, an increase of approximately 1.4% as compared with $3.566 billion in revenue reported in the second quarter for fiscal 2007.
- Total gross margin was 48.5% of revenue, an increase of 3.5 percentage points over the gross margin for the second quarter of fiscal year 2007. From a product margins standpoint, as in the first quarter, the company continued to benefit from component cost reductions. Such decreases were largely passed on to customers in the form of price reductions and/or discounts. The company did not experience any unusual or surprising component cost reductions.
- Services gross margins continue to benefit from higher volumes and continued cost reductions, which were offset by an increasingly competitive pricing environment for support services and higher mix of professional services.
- Total R&D and SG&A expenses at approximately $1.458 billion were right in line with expectations and down about 1% to 2% on a year-over-year basis. The total decrease is masked by the impact of currency noted above.
- The company recorded $55 million tax provision.
- GAAP net income was $260 million or earnings per share of 31 cents as compared with a net income of $133 million or earnings per share of 15 cents for the second quarter of fiscal year 2007.
- Products revenues totaled $2.249 billion, a decrease of 0.5% year-over-year. Product revenues reflected higher mix, of both higher-end systems and storage products which carry higher gross margins, and a strong level of Niagara-based servers.
- Within products revenues, computer systems products revenue was $1.594 billion, a decrease of 2.4% year-over-year.
- Storage products revenue was $655 million, an increase of 4.6% year-over-year.
- Services revenues totaled $1.366 billion, up 4.6% year-over-year.
- Within services revenue, support services revenue was $1.41 billion, up 4% year-over-year.
- Revenue from professional services and educational services totaled $325 million, an increase of 6.6% year-over-year.
- The company ended the quarter with cash and marketable debt securities balance of $4.677 billion and generated positive cash flow from operations of $336 million.
- The company repurchased 36.7 million shares of its common stock, which equates to approximately $750 million. Shares were repurchased at an average price of $20.44.
- There is currently $800 million remaining of the $3 billion share repurchase program announced in the fourth quarter 2007.
GAAP operating margin was above 7% heading into the back-half of the year.
- The company saw strong demand at the end of the quarter, despite uncertainty in the U.S. economy, and delivered solid bookings growth, also over 7%.
- The company expects the momentum to continue as adoption of Solaris and OpenSolaris grows in emerging companies and emerging economies, also as it ramps up its Linux and Solaris stage Niagara 2 offerings and bring Intel based products online.
- The company saw double digit growth in India, China, Latin America, Eastern Europe, the Middle East and Africa, where it is amplifying investments.
In terms of product performance, Niagara systems stood out, growing more than 100% year-over-year to approximately $285 million, with Niagara 2 based systems beginning to ship in December.
- Solaris registered licenses reached 11.5 million, up approximately 65% year-over-year, with over 70% of those licenses reaching the broader hardware market outside of Sun’s own offerings.
- Infrastructure software business grew more than 12% year-over-year, along with Enterprise servers, inclusive of mid-range and high-end platforms which grew 6% year-over-year, as the OPL based SPARC Enterprise M series continues its strong performance in the datacenter and long-standing relationship with Fujitsu continues to bear fruit. Disc spaced storage grew 7% based on strong high-end and mid-range Array performance, and Sun Fire 4500 or Thumper billings were approximately 26 million.
- The company signed a multi-year OEM agreement with Dell, making the Solaris operating system and support services available directly to their customers. With IBM and Dell signed, this leaves only one tier-1 vendor without such a relationship.
- The company did use the SPARC Enterprise 5120 and 5220 servers, the first Enterprise servers to use the UltraSPARC T2 processor, and these double the threads of Niagara 1 systems and have in support for floating point and advanced crypto and networking technology.
- The company unveiled the industry’s first open-sourced datacenter virtualization and management platform at Oracle OpenWorld, called Sun’s xVM Virtualization platform, along with management platform xVM Ops Center.
Bookings grew by more than 7% on a year-over-year basis and deferred revenues grew by more than 24% on a year-over-year basis.
- Product deferred revenues increased by approximately 47% on a year-over-year basis. Part of the increase in deferred revenues, reflects the impact of the switch to sellout for the U.S. and Asian channel development partners, which was approximately $120 million.
- Deferred service revenues increased by more than 16% on a year-over-year basis.
- Revenues in EMEA grew by 7% on a year-over-year basis; in Asia-Pacific, overall revenues grew by only 2% on a year-over-year basis. However, as in the recent past, that overall growth reflects strong growth in greater China, India, Korea and other geographies, which was offset by continued decreased revenues from Japan.
- Year-over-year revenue growth was more than 25% in India and approximately 15% in both greater China and Korea.
