Sun beats the Street with surprise profit

SAN FRANCISCO: Sun Microsystems on Tuesday posted a surprise profit ��� after five quarters of losses ��� and said Kohlberg Kravis Roberts would make a $700 million investment in Sun debt, sending its shares up 8%. The quarterly results and Sun���s revenue forecast were both better than expected.

Sun said 7% revenue growth in the just-completed quarter was due to better sales of servers using its Sparc chips, servers using Intel-compatible chips, and the acceptance of its Solaris 10 operating system. Since Sun made Solaris freely available, more than 7 million copies of it have been downloaded, Chief Executive Jonathan Schwartz said on Monday.

Sun said on Tuesday that KKR Private Equity Investors , the public fund of private equity firm KKR will get a seat on Sun���s board in exchange for its $700 million convertible debt investment.

Sun posted a fiscal second-quarter net profit of $126 million, compared with a net loss of $223 million a year ago. Revenue rose to $3.57 billion from $3.34 billion.

Earnings per share were 4 cents, excluding restructuring charges but including stock-based compensation expenses, which beat the consensus of break-even, according to Reuters Estimates. KKR���s investment will buy $350 million in convertible senior notes due in 2012 and $350 million in convertible senior notes due in 2014. Schwartz in a conference call called the deal ���opportunistic��� for Sun, which ended the quarter with $4.8 billion in cash and short-term investments.

Sun chief financial officer Michael Lehman forecast revenue in its current quarter to decline 3% to 5% from last quarter, in line with historical seasonal norms. That forecast implies revenue in the current quarter of $3.39 billion to $3.46 billion, compared with analysts��� expectations for revenue of $3.32 billion.

Lehman also said on a conference call that the company was on track to achieve its goal of at least a 4% operating profit margin when it exits the fourth quarter of fiscal 2007.

Many Wall Street analysts have said Sun���s software is key to its financial turnaround and return to profit growth. Shares of Sun rose 29% in 2006, compared with an 11% increase in the Merrill Lynch Technology 100 Index, of which Sun is a member, in the same time period.