After years of losses, Sun Microsystems returned to profitability in the last quarter, while Advanced Micro Devices (AMD) swung to a loss, providing evidence that the road to recovery in the technology industry is a bumpy one.
"It's great to be profitable again," Jonathan Schwartz, chief executive of Sun, whose string of losses had once led analysts to question the company's ability to survive, told analysts in a conference call. "Sun's financial performance this quarter demonstrates that our strategy and discipline are paying off."
In contrast, Advanced Micro Devices, the computer chip maker, reported a US$574 million loss, in contrast to a US$96 million profit in the quarter a year earlier. Ten days ago, it warned investors that lower prices had hurt its bottom line, a result of a bruising price war with its larger rival, Intel.
On Monday, Intel announced a deal to become a second outside supplier of server chips to Sun, entering territory that AMD had long claimed for itself. Sun also announced on Tuesday that the private equity firm Kohlberg Kravis Roberts & Co would make a US$700 million investment in the company in the form of convertible senior notes.
Sun's net income for the quarter, the second of its fiscal year, was US$126 million, or US$0.03 a share, in contrast to a net loss of US$223 million, or US$0.07 a share, for the period last year. The latest result beat analysts' forecasts.
Revenue was US$3.6 billion, an increase of 7 percent over the US$3.3 billion reported for the second quarter last year. Sun attributed the growth to server sales, as well as strong acceptance of Solaris, Sun's computer operating system. Revenue in Sun's computer systems products unit increased 14 percent, the fourth consecutive quarter of year-over-year revenue growth, the company said.
Sun's net income for the second quarter included US$58 million of stock-based compensation charges, US$26 million of restructuring and related charges and a tax benefit of US$4 million. The impact of these three items was a loss of about US$0.02 a share.
Shares of Sun rose as much as 8 percent, or US$0.46, to US$6.12 in late trading after the report was issued, after declining US$0.09, to US$5.66, during regular trading.
"It's an important milestone," said Brent Bracelin, an analyst at Pacific Crest Securities. "They are well on their way to executing a turnaround." Bracelin said that the challenge now would be for Sun to keep costs down as it headed aggressively into volume markets, where profit margins were lower.
While the Sun-Intel deal announced on Monday had no impact during the December quarter, it serves as an illustration of AMD's precarious position as it tries to hold on to the market share gains of the past year.
AMD has spent several quarters embroiled in a fierce price war with Intel in an effort to gain market share, particularly as Intel introduced its new line of high-performance chips.
AMD said shipments of its server processors, which have the highest profit margins, were essentially flat with the previous quarter, while the average selling prices for those chips were down significantly. The company said, however, that overall microprocessor shipments increased 26 percent.
AMD, based in Sunnyvale, California, posted a net loss of US$574 million, or US$1.08 a share, for the quarter, the fourth of its fiscal year. For the same quarter last year, AMD earned US$96 million, or US$0.21 a share. Revenue for the quarter was US$1.77 billion, compared with US$1.84 billion at the same time last year.
In addition to the price war with Intel, AMD also attributed its lower profit to heavy costs associated with its US$5.4 billion acquisition of ATI Technologies, the graphics chip maker it acquired in October. Excluding those costs, as well as employee stock-based compensation expenses, AMD reported fourth-quarter revenue of US$1.37 billion, compared with US$1.35 billion last year.
Shares of AMD declined as much as 5 percent in after-hours trading after release of its earnings report; they declined US$0.02, to close at US$17.51, in regular trading. AMD's warning on Jan. 12 sent its shares down US$1.91, or 9 percent, to US$18.27, and led several Wall Street investment firms to lower their ratings of AMD.
Hector Ruiz, AMD's chief executive, said he expected the price war with Intel to continue.
"Pricing is very, very challenging and we expect it to be for all of the year," Ruiz told analysts.
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