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Server and storage maker

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

said it expects a seasonal sequential uptick in sales for the quarter under way. In a midquarter update for the second quarter of 2003, management predicted revenue will be in line with consensus estimates for $2.9 billion, or a 6.2% sequential gain.

But the company also said gross margins were likely to fall slightly below last quarter's levels of 41.2%, mainly due to continued competitive pricing.

Management refused to give an earnings forecast today, but Wall Street expects Sun to post a penny loss in the quarter under way.

In after-hours trading, the stock rose a dime, gaining 2.7% to $3.86.

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In response to an analyst's question on the conference call, CFO Steve McGowan suggested demand for Sun's goods is holding steady, neither improving nor getting worse. But he emphasized that with five weeks left in the quarter, it's still difficult to make predictions.

In another noteworthy comment, the company said a portion of its $2.2 billion balance of goodwill is impaired, but that it is not yet able to quantify the amount of impairment that will be recognized this quarter.

Despite Sun's refusal to comment on earnings, today's sales forecast is helpful because Sun refused to offer any guidance at all on its most recent conference call last month, citing the lack of visibility.

Its October quarter was fairly disastrous, with revenue plummeting 20%, well below the 10% to 15% slide the company had expected. At the time, the company also announced plans to let go 11% of its workforce and take a charge of about $300 million to cover restructuring costs.

Analysts currently expect Sun's business to improve to the break-even point when it reports results in March, and finally turn a profit in the June quarter.

In line with other tech issues, Sun shares have rebounded sharply from their early October lows, jumping 55% to Tuesday's close of $3.76. But the stock is still down 69% year to date.


has struggled as cost-conscious IT managers have grown less enthusiastic about its high-end, proprietary hardware and begun increasingly opting for alternatives based on Wintel and Lintel. Though Sun has responded by offering its own Linux-based servers, analysts worry that the move will hurt its revenue and margins.