Sun's quarterly revenue peaked at about $5bn back when corporations and Internet companies eagerly spent on costly Unix servers. But Sun has struggled as those sales eroded while IBM and HP invigorated efforts to steal Sun customers, pushing the company into the red. Profit margins were lowered by "list-price reductions, competitive discounting and sales promotions," McGowan said. But the continuing price pressure on Sun was somewhat offset by an increase in software profit margins resulting from the end of the Sun-Netscape Alliance, under which Sun had to split some server software revenue with AOL Time Warner. The economy remains difficult as well. "We are not counting on an economic recovery in our forecasting for fiscal 2003," McGowan said in a conference call with reporters. But McNealy remained characteristically brash while discussing the quarter. Eroding profit margins, which dropped farther than Sanford Bernstein analyst Toni Sacconaghi expected, indicate "the desperation of our competition," McNealy said. "We crushed IBM, we crushed HP in the March quarter." Sun is succeeding at expanding from its traditional customer base, chiefly financial services and telecommunications companies, but also to a lesser degree education and manufacturing. "Over half our revenue is now coming from our nontraditional businesses," McGowan said, pointing to in retail, health care and life sciences. The company highlighted new customers, including Aetna and Cigna, Brigham and Women's Hospital in Boston, OfficeMax and Best Buy. In storage, Sun beat out EMC to win a 36-terabyte account at Eastman Kodak and another with General Electric Transportation Systems. Sun is on the brink of jumping into the market for servers running the Linux operating system, a significant departure for a company that has boasted of the simplicity of having a single operating system. Likely timing for the move is at the LinuxWorld Conference and Expo in August, at which McNealy will deliver the keynote address. Sun also is preparing to overhaul its servers with faster 1.05GHz UltraSparc III processors, with 1.2GHz to follow. The 1.05GHz chips will be shipped in a deal to sell 10 top-end Sun Fire 15K servers to the Cambridge-Cranfield High Performance Computing Facility. Jabbar's retirement from the sales operation is effective immediately. "I've logged over a million miles in two years, and I'm going to sit back and rest a little," he said during a conference call. Youngjohns has worked closely with Jabbar and the executive change will be smooth, Sun promised. "I'm extremely confident of a straightforward transition," Youngjohns said. Jabbar took over as top salesman two years ago, just as the Internet mania was collapsing. His top priority was increasing revenue when he took the job, Jabbar said, but that changed as IBM's attack on the Unix market gained traction. "Six months into the job, that (priority) changed to market share," Jabbar said.
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