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Sun Swings to Profit

Updated from 4:40 p.m. EST

SAN FRANCISCO -- Sun Microsystems (JAVA) raised its profit margin estimates for the year, as it delivered its fourth consecutive quarter in the black after Monday's close.

But a stubbornly sluggish top line continued to dog the company, pushing its shares down in extended trading.

The Santa Clara, Calif., company mustered meager 1% year-over-year sales growth in its fiscal first quarter, with revenue of $3.22 billion. Analysts polled by Thomson Financial were looking for $3.27 billion in revenue, the equivalent of 2.4% year-over-year growth.

Sun executives stressed that the company is committed to doing better, with CEO Jonathan Schwartz describing top-line growth as "absolutely our No. 1 priority" in the current fiscal year.

He pointed to strong orders for Sun's Niagara servers, up 70% year over year, and industry-standard servers based on Intel (INTC - Get Report) and Advanced Micro Devices (AMD - Get Report) microprocessors, up 10%, as indicators of increasing demand.

"We think we're going to be more exposed to that growth," Schwartz said in a post-earnings conference call.

That exposure apparently won't be enough to bump Sun's full-year revenue expectations, which continues to call for low-to-midsingle-digit growth.

While Sun did raise its full-year gross margin estimate by one percentage point to a range of 44% to 47%, the company acknowledged that some of that upside is simply the result of lower-than-expected component costs.
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