Sun continues 30 month losing streak

Sun has endured a tenth consecutive quarter in decline as the company failed to meet one of its key financial objectives - generating cash from operations.

Sun reported a net loss of $286m on revenue of $2.54bn - down from $2.75bn for the comparable period last year. Net loss 12 months ago was $111m.

Despite the financial woes for the quarter - the company's first in fiscal 2004 - Sun is not changing its strategy and doesn't plan deeper layoffs, at least for now, said CEO Scott McNealy.

McNealy said during a conference call: "We're doing our best to be a disruptive innovator. We think it's working. It's not showing up in the numbers, and we're not happy with that."

Sun had warned in September of "a particularly difficult quarter...due in part to intense market and competitive dynamics," predicting that it would post a loss of seven cents to 10 cents per share.

Problems with product quality also hampered Sun. In the quarter ended 30 June, a flaw in Sun's lower-end V210 and V240 servers hurt the company. Things got worse in the most recent quarter.

Sun raised quality standards, found more problems, was forced to stop shipping "the majority of our servers," CFO Steve McGowan said. "We are pleased we purged the problems," he added, but the delays meant that 60 per cent of the company's revenue arrived in the last four weeks of the quarter.

Sun lost $49m in cash from operations for the quarter but still has $5.5bn in cash and marketable securities, the company said. In the past, McNealy has repeatedly pointed to positive cash flow from operations as a key indicator of the company's viability despite hard times.

When cash flow from operations dipped into negative territory, it broke a 35-quarter streak, McGowan said. Sun doesn't consider the issue of major concern this quarter, however, McGowan said. "I consider this more a blip," he told reporters.

The biggest reasons for the negative cash flow were the overall financial loss and an increase in bills Sun had to pay from spending in the earlier quarter, McGowan said.

Sanford C. Bernstein analyst Toni Sacconaghi, who had expected the negative cash flow, said after Sun's warning in September that he believed the financial results would trigger more layoffs at Sun. The company cut about 1,000 jobs in September.

But no more cuts will come, at least for now. "We are not planning to perform a major work force restructuring," McGowan said. Sun customers support Sun's strategy and want to see it brought to fruition, he said.

Stephen Shankland writes for News.com