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By Stephen Shankland, 27 November 2002 12:50

NEWS Sun Microsystems said on Tuesday it's on course to hit revenue targets for this quarter - but the picture's not so bright when it comes to profit margins and operating expenses. The server giant expects revenue close to analysts' expectations - $2.9bn for the company's fiscal second quarter, ending 31 December. However, Sun will also see "slightly" lower profit margins and higher operating expenses than analysts predicted. If the goal is reached, $2.9bn in revenue would be an increase from Sun's $2.7bn for the first quarter, ended 30 September. But it would be a drop from the $3.1bn in revenue recorded in the second quarter a year ago. "We expect a seasonal sequential uptick in revenue this quarter," chief financial officer Steve McGowan said recently in a conference call. Gross margins will likely decline "slightly," he said, "due mainly to the continued competitive pricing environment". Sun's operating expenses will increase compared with those in the first quarter as a result of the acquisitions of Pirus Networks and Terraspring, McGowan said. In addition, Sun isn't benefitting this quarter from the mandatory holiday it required employees to take in early July to cut costs, he said. McGowan declined to comment on earnings estimates for the current quarter. To regain profitability in the first six months of 2003, Sun announced a plan last month to cut 4,400 jobs. In headier times two years ago, when Sun wasn't facing as much competition or economic gloom, the company garnered $5.3bn in revenue in the December quarter. While Sun hasn't faltered in its ability to add to its cash hoard, it's concluded twice now that major layoffs were required to restore more than fleeting profitability. In October, Sun stated that it had two overriding financial objectives: to remain "cash-flow positive" and to "return to long-term profitability," McGowan said. "We saw last quarter we were achieving one, but not both," McGowan said. The job cuts in the United States are complete, and international cuts will be largely done by the quarter ending 31 March, he said, adding that the company is not planning any further job cuts. Sun's systems - chiefly higher-end servers that handle round-the-clock computing chores such as logging a company's sales - compete with products from IBM, Hewlett-Packard and Dell. Stephen Shankland writes for News.com