By Steve Fisher, Editor In Chief -- PALO ALTO, CA – This afternoon, Sun Microsystems held a first quarter fiscal year 2002, mid-quarter update conference call. The concept of holding such a call led this reporter to believe that the news from the computing giant was not going to be all that good. To see if that assessment was correct I listened in on the call, which was broadcast via the Web. The call was hosted by Sun’s Director of Investor Relations Mark Paisley and featured the comments of Mike Lehman, Executive Vice President of Corporate Resources, and Chief Financial Officer. According to Paisley the purpose of the call was to give listeners a “Pulse to the business thus far into our first quarter, fiscal year 2002.” From there Paisley handed the speaking duties over to Lehman. He began by speaking on Sun’s basic economic philosophy. “We are here to build a company for the benefit of our long-term shareholders. To that end, we are consciously willing to sacrifice maximization of near-term earnings to protect key investments,” Lehman stated. “We will continue to develop the technologies and competencies that will get us to our long term goal(s). We have the right vision and strategy. We are determined to keep investing in R&D and to build the most compelling, comprehensive, scalable and available platform for the delivery of applications and Web services.” Lehman continued, “The progress we have made in the past year is remarkable. We have a stronger server line as we are now well down the UltraSparc III path. We have a stronger set of storage offerings with the acquisition of LSC and HighGround and the Hitachi relationship, and our SunOne software platform with Solaris, iPlanet, Forte, and the Java II Enterprise Edition, offers the most reliable, available, open and comprehensive set of technologies for the development, deployment, and support of smart Web services. Finally, our services business has never been in better shape.” Lehman then went on to mention the well-documented “macroeconomic factors” (stopping well short of complaining about the sluggish economy of the last few months or even calling it such) the world over and how they are certainly weighing quite heavily on customers short-term purchasing. Despite these factors Lehman remained optimistic and went on to say that he believed the market opportunities for Sun are “absolutely huge.” He also said that Sun remains “resolute” in their desire to keep focused on the longer-term. He then said that much of Sun’s growth in the early part of last fiscal year and the year prior to that was due to unprecedented demand from the telcos, service providers and financial services sectors. “Those areas experienced explosive growth and we and other players gained significant market share during that time,” Lehman said. “As the level of demand in those sectors has greatly diminished, we have had to work even harder to make up part of that demand from other areas. This customer-mixed shift will continue to occur gradually.” “Turning back to the present, as most of you know, during our Q4 conference call we stated that our break-even point was around $3.7 Billion in revenues and that we were planning on being at or above that point,” Lehman stated. As I was listening I imagined that this was the point where Sun shareholders tuning in to the call were expecting a big “however.” Lehman continued, “This quarter has proved to be quite challenging. The order rate through week eight of this quarter has been less than we expected six weeks ago. At this rate, it will be quite a challenge for us to hit the break-even level of revenues. Order rates in Europe and Japan in particular are less than we had expected even given the normal seasonal issues we face. Orders in the U.S. are tracking near our expectations, while those in the ‘rest of the world’ category are meeting our expectations. It will take a very large month of September in terms of demand in order for us to hit the break-even point. At this date, I would not count on that happening.” So there you have it. No “however” but it seems that Sun will probably not be making even its break-even point for the quarter. Lehman then went on to discuss other financial matters such as the company’s overall level of operating expense, which during the Q4 conference call was reported to be roughly $1.6 Billion. Lehman reported that Sun’s employees are responding well to the current situation and he expected the overall operating expense to come in below that $1.6 Billion. He also stated that although Sun was still hiring selectively, due to performance management, attrition, and reduction of a few programs, the company expects to exit the quarter with roughly 500 employees less than it had at the end of Q4. The CFO then reminded listeners that Sun still has around $6 Billion in cash and an excellent record of managing its assets. He then commented that, ”We have absolutely no doubt that we will exit this period with a stronger, more focused company. Looking just slightly further ahead, we continue to roll out new products and expect that the strength of our product cycle will help us see improved financial results as early as fiscal Q2.” The floor was then opened up to the questions of the financial community. I signed off shortly thereafter. ----- Reader comments are always welcome via the "Send Your Comment" button below left. -----