Updated from 4:26 p.m. EDT

Sun Microsystems

(SUNW) - Get Report

on Thursday missed its financial targets for its fiscal third quarter as its product revenue declined from the same quarter last year.

For the quarter ended on March 27, Sun reported a loss of $9 million, or break-even on a per-share basis, on sales of $2.62 billion. During the same quarter last year, Sun lost $760 million, or 23 cents a share, on sales of $1.71 billion.

Excluding charges, Sun lost $61 million, or 2 cents a share. Analysts expected break-even earnings, when excluding charges, on sales of $2.73 billion, on average, according to Thomson First Call.

Its bottom line includes a restructuring charge of $45 million, a gain of $54 million on settlement income from Microsoft, a gain of $34 million on adjustments to deferred tax assets, a gain of $7 million for other tax benefits, and a $2 million gain on equity investments.

Shares of Sun fell to an eight-month low of $3.76 on the financial results after closing the regular session down 6 cents to $3.96. Investors were also scared out of tech holdings by an unexpected announcement from competitor

IBM

(IBM) - Get Report

that it, too,

missed financial targets for its most recent quarter.

Sun's product revenue dropped to $1.68 billion from $1.7 billion in the same quarter last year and $1.84 billion in the previous quarter. Storage revenue fell because of what executives said was a shift away from high-end, data-center systems. Computer system sales increased 2%, and mid- and low-range server sales also rose.

Product backlog slipped to $1.33 billion from $1.38 billion the previous quarter, and the book-to-bill slipped to 0.97-to-1 vs. 1.05-to-1. Services sales rose to $944 million from $940 million in 2004 and $1 billion in the previous quarter.

The server maker didn't provide sales and earnings targets for its fiscal fourth quarter, but executives stated that its cost reductions and spending plans are on track. Analysts had predicted fourth-quarter earnings of 3 cents a share on sales of $3.12 billion.

Sun executives painted its financial results in terms of progress made during the fiscal year's first three quarters and in terms of being on track to hit its cost reductions and operational goals for the year.

"All of this is moving the company in the right direction," said CEO Scott McNealy. "We have a lot more we can do and we will continue." He cited 30 ongoing projects at Sun designed to further reduce its cost base and improve its efficiency.

Sun has been trying to

orchestrate yet another resurrection, this time around the idea of computing as a service, like electricity.

The Santa Clara, Calif.-based company has spent the last three years trying to stabilize its financial situation after a near-fatal blow in the wake of the dot-com implosion.

Executives acknowledged late Thursday that Sun still needs to work on spurring sales, but they maintained that the company is getting closer.

McNealy cited positive reactions from customers to Sun's products, such as servers using

Advanced Micro Devices'

(AMD) - Get Report

Opteron processor and initial interest in Sun's Solaris 10 operating system.

"There's always a lag effect," McNealy said.