Title: Shares of Sun Falter After It Lowers Its Earnings Forcast
SAN FRANCISCO, May 30 � Shares of Sun Microsystems
fell more than 10 percent today after the company lowered its earnings forecast
for the current quarter and provided updated projections that were as low as
one-third what industry analysts had expected it to report.
Michael Lehman, Sun's chief financial officer, said revenue was now expected
to be $3.8 billion to $4 billion for the fiscal fourth quarter ending next
month. Mr. Lehman said Sun expected earnings to be 2 cents to 4 cents a share, a
marked drop-off from the 6 cents projected by industry analysts.
"Demand in Europe has really trailed off more than we really thought," Mr.
Lehman said in a conference call with industry analysts and reporters late
Tuesday after the stock market closed. "The news is Europe. The surprise is
Europe."
Sun's shares fell $1.92, or 10.3 percent, to $16.75 this morning.
Doug van Dorsten, an analyst with Thomas Weisel Partners, which had projected
Sun would ultimately report earnings of 5 cents a share, said a slowdown in
Europe was not particularly surprising and was probably linked to a slowdown in
the United States. Rather, Mr. Dorsten said, Sun might be trying to play down
the effect on its earnings of its transition to a new family of servers � the
ultrapowerful computers that are the bread and butter of Sun's business.
Mr. Dorsten said Sun began rolling out the lower end of its Ultra Sparc III
product family in December but had not introduced the higher-end servers, and
potential customers might be waiting to buy the latest technology. Moreover, he
said, the company could be facing new threats from competitors pushing into
Europe.
"Sun perhaps is downplaying the product transition," Mr. Dorsten said, adding
that problems related to a product transition were not caused by macroeconomics
but rather by factors within Sun.
"At its core," he said, "this is an execution issue."
Mr. Lehman asserted, however, that Sun's bottom line was affected primarily
by macroeconomic "demand" not by issues related to the transition or any
difficulty the company had getting supplies to build its servers. That said, Mr.
Lehman said the company did see some stabilization in demand in the United
States.
Daniel R. Kunstler, an analyst with J. P. Morgan, said Mr. Lehman seemed to
indicate that future economic conditions remained murky, suggesting, in a
refrain that has become common in recent months, the company offered "little
visibility."
Mr. Lehman was "not really trying to encourage anybody to look for a silver
lining," he said.
"He was saying: `This is the environment we're in. Let's not try to hold out
signs of a recovery or hope for a recovery,' " Mr. Kunstler added.
In its third fiscal quarter, Sun, based in Mountain View, Calif., reported
that it earned 8 cents a share, but that figure was 4 cents a share when a
deduction of one-time special items was included.
Early Tuesday, Laura Conigliaro, an analyst with Goldman, Sachs, cut her
earnings forecasts for both Sun and the data-storage concern EMC, sending both
companies' shares down.
Then, after Sun issued its warning, Ms. Conigliaro said that the company, as
a result of the change in demand, might have to rethink some of the rules it has
sought to live by. Those include an aversion to layoffs and to acquisitions of
large companies.
"A lot of things got a little out of hand last year, and Sun probably will at
least discuss and give a harder look towards certain things that up to now it
has rejected," she said.
As for EMC, Ms. Conigliaro cut her earnings estimate to 76 cents a share from
81 cents. She said it appeared at one time that EMC and other data-storage
companies were well insulated from the economic downturn.
EMC also announced layoffs of 1,100 employees, or roughly 4 percent of the
work force. The company said the cutbacks were intended to lower expenses and to
"ensure maximum flexibility in seizing opportunities as the economy
stabilizes."
EMC also said it planned to continue to increase the number of sales
representatives and systems engineers through new hiring or redeploying the
current work force. The company said it was still seeking to meet a 2001 revenue
growth target of "20 percent or greater."
Shares of EMC, based in Hopkinton, Mass., fell $2.29, or 6.7 percent, to
$31.70 this morning.