This summary is based on the third quarter fiscal 2008 earnings call conducted by Sun Microsystems Inc. (JAVA: chart) on May 1, 2008.

CEO and President: Jonathan Schwartz
CFO and EVP of Corporate Resources: Michael Lehman
VP Treasurer of Sun Microsystems: Ron Pasek

Key Investors Issues

- The net loss of 4 cents per share as against net income of 7 cents per share in prior year.
- Quarterly revenue dropped 0.5% over last year to $3.266 billion.
- In Q4, the firm intends to take a restructuring charge of between $130 million and $220 million.

Third Quarter Fiscal 2008 Financial Highlights

GAAP net loss for the third quarter was $34 million or a loss per share of 4 cents.

This compares with net income of $67 million or earnings per share of 7 cents for the third period fiscal year 2007.

Sun''s total revenues for the quarter were $3.266 billion, a decrease of 0.5% as compared with $3.283 billion in the prior year.

- Q3 product revenues totaled $2.3 billion, a decrease of 2.8% year-over-year. Within products revenues, computer systems product revenue was $1.473 billion, a decrease of 1.8% year-over-year. Storage products revenue was $530 million, a decrease of 5.4% year-over-year.
- Q3 services revenue totaled $1.263 billion, up 3.3% year-over-year. With in services revenue, support services revenue was up $961 million up 1.2% year-over-year. Revenue from professional service and educational services totaled $302 million, an increase of 10.6% year-over-year.

The third quarter was a seasonally challenging quarter as expected.

However, in addition, during March, the firm saw a substantive change in US sentiment, along with change in orders mix and closings, with purchase decisions postponed on the basis of macro economic uncertainty.

In terms of the US vertical performance during the third quarter, financial services business, specifically in the Northeast was solid and on plan, while the majority of weakness came in from government vertical, as well as industries with significant consumer exposure including retailers and the telecommunication sector. Collectively, the slowing had the most pronounced impact on the higher end of the firm’s system-product sales from high-end tape libraries to enterprise servers. The net result was a gap in US performance, which given its prominence in overall business typically around 40% of total revenue had a significant effect in the firm’s overall results.

In the quarter, the firm continues to see the market align with its investment around high-performance computing, open-source innovation, eco-efficiency, and most importantly on using technology in network computing as a source of competitive advantage.

The company continues to see very strong growth in key markets outside of the US, namely across EMEA, Asia Pacific and the International Americas. More specifically, the firm sees the emerging markets across these geographies as key components to its growth strategy as evidenced by 20% year-over-year growth in Brazil, 30% year-over-year growth in India, 8% growth in China, Korea, Russia and 18% growth in the Middle East Africa and Eastern Mediterranean region.

The firm is committed to making necessary investments to support and fuel the momentum it sees, driven by its open-source platform from MySQL to OpenSolaris to its newly announced Open Storage Platform alongside its ultra efficient Niagara and x86 business.

Niagara platforms grew billings at an impressive flip of 110% up year-over-year to approximately $300 million, as productivity and efficiency remains among the highest priorities for its customers across the world. The x86 systems business also continued to advance and the firm is seeing strong growth in its blades platform and wins in the burgeoning high performance computing sector.

The display storage business was up 6% within the quarter, and although the firm saw declines in libraries in high end storage systems, it has a great variety of new Open Storage innovations delivered in the market within the next few quarters, leveraging its Open Storage DFS system to deliver differentiation, performance and efficiency to a market it has historically been unable to reach.

Total gross margin was 44.9% of revenue, an increase of 0.4 percentage points over the gross margin for the third quarter of fiscal 2007.

The gross margin dropped 3.6 points percentage from Q2 to Q3. The firm’s services business, despite challenges associated with the implementation of new systems for coding, billing, and managing support, essentially met the expectations from both revenue and margins standpoint.

The firm’s professional and educational services practices, which principally assist customers with the design and implementation of Sun-based intellectual property showed good year-over-year revenue growth in Q3, more than 10%. At the highest level even with Q3 revenues that were more than $200 million below internal expectations, and a pronounced mix shift toward the mid-range and lower-end product sets, the firm improved its product gross margin slightly on a year-over-year basis.