Sun Microsystems Forecasts Loss; Foul-Up Blamed
Sun Microsystems, the nation’s largest manufacturer of powerful computer workstations, announced Thursday that it expects to report a fourth-quarter loss next month of as much as $26 million.
The 7-year-old Silicon Valley company, a fast-growing firm that until recently had been a favorite on Wall Street, said it could not assure that it will be profitable in its current quarter, which ends Sept. 30.
Sun has blamed its downturn partly on an internal data-processing foul-up that hampered its ability to track incoming orders and production rates. As a result, analysts said, the company did not detect early enough that order rates for its new line of computers introduced in April fell below initial expectations. That, in turn, caused Sun to make too many machines of some models and not enough of others.
Sun’s control problems may have been heightened by the recent loss of two top-level members of the company’s inner management circle. Bernard Lacroute, executive vice president and second-ranking executive, resigned abruptly in April and is currently working as a Silicon Valley venture capitalist. Two months later, Chief Financial Officer Joseph Graziano left for a similar post at Apple Computer.
Higher Revenue
Despite its problems, the company said it would report revenue of $1.75 billion to $1.77 billion for the fiscal year ended June 30, a jump of about 65% from the prior year. Revenue for the fourth quarter, it said, would be in the range of $425 million to $435 million, up about 16% to 19%. Losses in the fourth quarter, the company said, would range from $20 million to $26 million, contrasted with a profit of $25.3 million in the year-earlier period.
Although a loss for the final quarter had been widely expected since the company warned Wall Street of its problems in early June, the scope of Thursday’s announcement still surprised some analysts.
“This is most distressing,” said Peter Rogers of Robertson, Colman & Stephens, a San Francisco brokerage. “The problems are deeper than people thought.”
Rogers said he was specifically concerned that fourth-quarter revenue was in the range of $425 million, rather than the $500 million that company officials had told analysts in early June. Further, he said he was dismayed that the company has not entirely fixed its internal computer and financial controls systems.
Critical Time
In its announcement, the company acknowledged that “some data management and financial analysis and reporting tasks are not yet fully functional although the integrity of the system is improving rapidly.”
The problems come at a critical time for Sun. Competition in the workstation industry, always stiff, has intensified in recent months. Digital Equipment Corp. has introduced a new product lineup that challenges Sun’s aggressive pricing and Hewlett-Packard acquired Apollo Computer to strengthen its position in the industry.
“The next six months are critical for Sun,” said Bruce Jenkins, vice president of Daratech, a Cambridge, Mass., market research firm. “The company can’t operate on flair alone anymore. It has to improve its credibility with its customers and improve its operations and its internal controls.”
