After reporting fourth-quarter results that were mainly in line with Wall Street expectations, Sun Microsystems
Weak enterprise spending in the U.S., where Sun derives 40% of its revenue, led to sluggish results in the June-ended quarter, especially in the telecom, financial, and government sectors. These results echoed commentary earlier this year by Dell
Compounding the decline in Sun's top line was a shift toward lower-margin products, which led to a 2.9% decline in product gross margin versus last year's fourth quarter. Additional operating expenses associated with hiring 200 new sales reps in the quarter contributed to lower operating margin and a year-over-year decline in operating cash flow.
On the bright side, Sun noted healthy growth in the emerging markets of Brazil, Russia, India, and China and robust demand for its open source solutions, especially its new open storage products. Given their relatively minor contribution to Sun's overall revenue, though, growth in these areas will not be enough to offset the short-term challenges in the rest of the business. Following a price drop after the earnings release, Sun shares might be tempting to some investors. However, bargain buyers should note that the company's growth initiatives and ongoing restructuring efforts will take some time to play out.
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