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January 19, 1994

PROFITS AT SUN LOOK GOOD, BUT SLOW GROWTH GIVES CAUSE FOR MILD CONCERN

By CBR Staff Writer

The improvement in profit at Sun Microsystems Inc look superb, but less splendid is the single-digit increase in turnover in the most recent quarter (figures, page seven). Kevin Melia, Sun’s chief financial officer – but not for much longer because he wants to move East for personal reasons, comments We are very pleased with the results of the quarter. Our focus on earnings and the quality of our products is paying off with high demand and earnings growth. Sun’s successful new product offerings and the resulting strength in the high-end product mix, as well as our continued focus on cost management, helped increase gross margins from last year’s level. He says the company managed to reduce operating expenses as a percentage of revenues compared with the prior year for the fifth consecutive quarter. The company claims a new record for its order book, fuelled by the Sparcserver 1000 and Sparccenter 2000 servers and ZX and SX high-performance graphics products. The company claims that inventory turns, at 10.8, remain among the highest in the industry – that means that it effectively fills and then empties its warehouses 10.8 times a year. The reason the earnings per share figure is up so much is that Sun has spent a lot of its spare cash buying back 10m shares since June.The company reckons it has made excellent progress in migrating to Solaris 2, with nearly 2,000 applications available from independent software vendors. But the company does not really address the slow growth in turnover, which is in sharp contrast to the growth being achieved by Hewlett-Packard Co. Melia stepping down as chief financial officer, and will be replaced by current vice-president and corporate controller Michael Lehman with effect from March 1. Melia will continue as acting president of Sun Microsystems Computer Corp until a permanent president has been named to the hardware business.

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