Sun Posts First Profit After Five Quarterly Losses

| About: Sun Microsystems (JAVA)

Shares of server manufacturer Sun Microsystems surged 9.5% yesterday as the company posted its first profit since mid-2005. The company reported fiscal Q2 profit of $126 million, or $0.03/share, versus a year-ago loss of $223 million, or $0.07/share. Revenue was up 7% to $3.57 billion. Analysts had forecast EPS of $0.01 on revenues of $3.52 billion. Sales were up 6.9% to $3.57 billion. Sun's strong results reflect the positive impact of product upgrades and strategic price cuts that have helped the company poach customers from rivals Hewlett-Packard and Dell. The company also announced that an investment fund owned by Kohlberg Kravis Roberts is investing $700 million in Sun and will take a seat on its board, a deal Sun CEO Jonathan Schwartz terms an "opportunistic" transaction. In a bid to ensure the best prices, Sun will begin using chips made by Intel this year rather than relying exclusively on AMD chips.

• Sources: MarketWatch (I, II), Bloomberg (I, II), Wall Street Journal. Conference call transcripts: F2Q07 (Qtr End 12/31/06)
• Related commentary: Sun Set to Announce Deal to Use Intel Chips in Servers, Sun Microsystems Has a New Sales Approach (And It's Working), KKR To Invest $700 Million in Sun Microsystems
• Potentially impacted stocks and ETFs: Sun Microsystems, Inc. (NASDAQ:SUNW). Competitors: Hewlett-Packard Co. (NYSE:HPQ), International Business Machines Corp. (NYSE:IBM), Microsoft Corp. (NASDAQ:MSFT), Dell Inc. (NASDAQ:DELL). ETFs: Internet Architecture HOLDRs (NYSE:IAH), PowerShares Dynamic Hardware & Consumer Electronics (PHW)

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