Sun Microsystems, EMC Issue Sales Warnings
Technology investors were rattled again Thursday when two of the sector’s darlings--Sun Microsystems and EMC Corp.--warned of slowing sales growth.
Sun (ticker symbol: SUNW), a bellwether for the technology sector, warned that a slowdown in capital spending had hurt U.S. demand and lowered its sales and profit targets for the current fiscal third quarter. The company cut its sales growth forecast to 10% to 13% for the current quarter, down from the nearly 30% growth that Wall Street had expected.
Sun now projects it will earn only 7 to 9 cents per share in the quarter, Chief Financial Officer Michael Lehman said during a mid-quarter conference call after the stock market closed. Wall Street had expected earnings of 15 cents per share, according to First Call/Thomson Financial.
“We are disappointed with one and only one thing, and that is the U.S. economy,” Chief Operating Officer Ed Zander told analysts in the conference call. “I think there is a broad-based downturn in capital spending.”
Sun’s stock slipped more than 9% in after-hours trading to $18.88--below its 52-week low of $19.19. The stock, which rose $1.19 to $20.81 in regular trading Thursday, has fallen 32% in the last week as concerns have mounted over the company’s outlook and its level of sales inventories.
Sun has been under pressure for months as the economic slowdown has spread to major corporations that previously had been expected to continue boosting information technology spending to increase their efficiency despite the downturn.
Zander said major firms were slowing technology infrastructure build-outs, reacting to a combination of the weak economy and the demise of dot-coms, start-ups that had heightened competitive pressure on the older companies to spend on technology.
Meanwhile, shares of EMC (EMC) tumbled more than 6% after the world’s No. 1 data-storage firm warned that its sales could fall as much as $1 billion below its own expectations, imperiling hopes that the hot data storage sector would somehow sidestep a broad technology slowdown.
EMC’s stock fell as much as $8.70, or more than 20%, to $34.25 in New York Stock Exchange trading before recovering to close at $40.35, down $2.60.
Even with the sell-off, EMC’s stock has outperformed the Nasdaq by about 40% since the beginning of last year.
The warning is a remarkable about-face for Hopkinton, Mass.-based EMC, which had previously been untouched by blips in the economy.
EMC reaffirmed that it’s on track to meet its 2001 revenue goal of $12 billion. But, citing an uncertain economic outlook, the company also warned that revenue growth for the year could be as low as 25%, below the 33% to 38% range it forecast last month.
Spokesman Mark Fredrickson said full-year earnings could be as low as 98 cents per share. Nevertheless, he said EMC still expects to meet Wall Street expectations.
