Are there brighter days ahead for Sun Microsystems?

Despite exceeding analyst's expectations, it appears that Sun is continuing to struggle. Sales fell nearly 11% from the year-ago quarter, and gross margins as a percent of revenue fell to 41.9%, down from 48.5% last year. The big gain in the shares yesterday was likely a result of Sun reporting a profit, while people were looking for it to lose money again, said one analyst.

"This is an expectations game and things weren't as bad as people thought, but trends are still eroding. It doesn't mean there is any sign of improvement, year over year," said the analyst.

The stock is down more than 7% today.

Many analysts who follow Sun still find it difficult to get enthusiastic about the company, despite the profit (excluding charges) reported in the last quarter. They're encouraged by cost containment measures instituted by Sun, but they note the spending environment continues to be weak for tech, particularly in the high-end server business.

Sales of lower-end servers are being pressured by competition from the likes of Hewlett-Packard Company (NYSE: HPQ) and Dell Inc. (NASDAQ: DELL). Indeed, server revenue fell 14% from a year ago to $1.37 billion. Business will probably continue to erode at Sun.

A Deutsche Bank analyst believes the company's long-time customers still have much capacity in their current servers, and with IT budgets being cut and no new product cycle, a prolonged weakness in high-end servers will persist. Sun's total sales of server systems fell 9% in the quarter by volume to about 80,000 units.

As usual, Sun's management didn't have much to say about the recent quarter, or its outlook.

CEO Jonathan Schwartz did say it was "great to see customers so aggressively embracing open source software, along with the company's new open source storage platforms as a means of radical cost reduction." Open source software and open source storage platforms helped push billings in key growth categories to double-digit increases.

In November, Sun said it would cut up to 6,000 jobs, or about 18% of its workforce, in a bid to save $800 million annually. That should allow the company to keep its head above water for the time being, but the economy needs to come out of the doldrums before any real growth takes place.

Louis Navellier's PortfolioGrader Pro, which offers free ratings for Wall Street stocks, rates JAVA an F or Strong Sell.

Jamie Dlugosch is a contributor to OptionsZone.com.