Sun Again Trims Earnings Forecast
Sun Microsystems, a top supplier of high-end computers for Internet and telecommunications companies, blamed poor sales in Europe as it slashed by half its profit expectations for the current quarter.
Palo Alto-based Sun has revised its sales and profit goals three times since February.
Faced with slowing demand in Europe and parts of Asia during the last six weeks, the company cut its earnings projections to 2 cents to 4 cents a share for the June 30 quarter, before accounting for one-time items.
Just last month, Sun said pro forma earnings in the quarter would be “flat to slightly down” from the previous quarter’s 8 cents.
Sun said Tuesday that its quarterly sales will fall to $3.8 billion to $4 billion, down from $4.1 billion in the first three months of this year.
“Without a doubt, it’s a challenging environment out there,” said Mike Lehman, Sun’s chief financial officer.
Sun shares fell $1.80 to $18.67 on Tuesday before the conference call with investors and analysts, then dipped to $17.98 in after-hours trading. Sun’s stock has lost a third of its value this year.
Sun is especially vulnerable to the overall slowdown in technology spending because the hard-hit telecommunications sector recently accounted for more than a third of Sun’s sales, analysts said.
“If your customer base isn’t buying, by definition you’re losing ground,” said analyst Richard Chu of SG Cowen Securities in Boston.
Sun is also subject to competition from rivals IBM and Hewlett-Packard because Sun is steering customers to computer servers running on its new UltraSPARC III chips. In order for Sun to sell its older servers, which run large corporate networks, it has to offer discounts or other incentives, said Doug van Dorsten of Thomas Weisel Partners in San Francisco.
Analysts seeking a silver lining pointed to Sun’s belief that the U.S. economic climate won’t get much worse. In the long run, analysts said, that’s more significant than prolonged weakness in other regions.
“They’re saying the U.S. is stabilizing, and if that’s so, that’s enormously positive news,” said Merrill Lynch analyst Thomas Kraemer.
But Sun Chief Executive Scott McNealy is also continuing to cut costs and to shift the company’s sales away from specialized groups of customers, such as Internet service providers and financial institutions, and toward Fortune 500 companies.
Sun last year passed IBM to become the largest seller of servers based on versions of the Unix operating system in the U.S., according to market researcher IDC. Those servers continue to sell well as a class because they handle large databases and high-speed transactions better than less-powerful machines using Intel semiconductor chips and Microsoft operating systems.
IDC predicts that Unix server revenue will increase by 10% a year on average through 2005.
Intel on Tuesday released its long-awaited Itanium chip, which uses a 64-bit architecture similar to that in Sun machines. But analysts, including Daniel Kunstler of J.P. Morgan, said that cheaper Itanium-based servers won’t pose much of a threat to Sun for some time.
“I’m not specifically worried about Itanium,” Kunstler said. “The immediate competitive landscape on the product end doesn’t look markedly different than it did a year ago.”
If Sun provided the computing power of choice for many dot-com companies, EMC provided the equipment for storing data for Internet firms.
EMC has also suffered this year. On Tuesday, Hopkinton, Mass.-based EMC said it would fire 1,100 employees, or 4% of its work force, and take a $22-million charge.
