When was the last time Sun's $5 stock was up 10% after it reported its earnings. Yeah, it's a hazy memory here too. But that's exactly what happened in after-hours trading on Monday when optimistic investors evidently decided a turnaround was locked and loaded.

The rest of the jury is still out.

Sun beat the Street's ESP estimates by four cents, returning $329 million, or nine cents a share, on revenues up 6.2% year-over-year to $13.9 million, delivering its third consecutive profitable quarter. It had promised a 4% operating margin in the June quarter and came in with 8.5% or $325 million with a gross margin of 47.2%.

Sun turned from a year-ago $301 million loss because it cut costs - and components were cheaper. It owed a lot to cheaper components. CFO Michael Lehman said they were the "largest element in the increase," meaning it's skating on thin ice. Operating expenses were down 25%, most of its coming out of SG&A.

All is not that rosy however. Sun managed to grow some business though not apparently in the United States. Software was solid in its last fiscal quarter - there are now nine million Solaris licenses out there, up 17% sequentially, and 1.7 million Java Enterprise System subscribers, up a half-million year-over-year - but storage was a bummer, down 10.4% year-over-year, and its servers were down 15%, its x86 machines down 5%. Unfortunately for Sun 70% of Solaris adoption is on other people's hardware.

It's depending on new products like Niagara 2 and Victoria Falls to lift its numbers. And virtualization, a two-edged sword, is supposed to improve the server mix and hence the gross margin, but it's currently impacting server sales.

Meanwhile, channel inventory, which was supposed to decline, is up over $250 million, up 10% sequentially.

Sun declined to make fiscal 2008 projections other than to voice its optimism about realizing a profit margin of 8% this time next year on growth in the low to mid-single digits and a rosy 10% operating margin the year after that.

This quarter Wall Street had expected Sun to earn two cents on revenues of $3.28 billion.

Goldman Sachs analyst Laura Conigliaro, who knows Sun better than anybody, is expecting Sun to come out with another restructuring plan on or about its analysts meeting September 5.