Sun Microsystems disappointed industry watchers hoping that business was about to recover with news that its sales are getting worse.

The company said on Wednesday that it will have difficulty reaching the break even mark this quarter, as demand for its products in Europe and Japan has been softer than expected.

Chief financial officer Michael Lehman said that Sun would probably not be able to hit the anticipated $3.7bn revenue mark, down from $5bn last year.

"This quarter has proved to be quite challenging. It will take a very long month of September in terms of demand for us to hit the break even point," Lehman told financial analysts in a conference call. "I'm not counting on it. I just don't think it is realistic at this point."

Although Lehman said that demand for Sun's high-end server and workstation products in the US remained consistent with its own expectations, he declined to give a sales forecast for the first quarter ending next month.

Analysts at First Call were expecting Sun to earn two cents a share this quarter on revenue of $3.8bn, before acquisitions. In the comparable period last year, Sun earned 15 cents a share.

Lehman was confident in the company's long-term health and said that it was willing to sacrifice its near-term results to keep research and development spending high.

Sun said it would end the quarter with 500 fewer employees, who will leave through attrition. The company has also asked workers to take vacation days by the end of the year to trim costs.