Cloudy Outlook on Sun After Grim Numbers
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Sun Microsystems warned that declines in its U.S. sales will persist through at least the end of the year, sending its shares plunging 12 percent on concerns that the high-end business computer maker will continue to lag rivals.
While Sun (NASDAQ: JAVA) blamed its difficulties on weakness in the U.S. economy, its biggest market, the company's quarterly results contrasted from those of IBM (NYSE: IBM), which reported strong domestic and overseas growth.
"Sun underperformed relative to another industry leader," BMO Capital Markets analyst Keith Bachman said, referring to IBM. "The point is 'Yes the outlook in the U.S. is weakening.' But with that said, Sun is underperforming against that backdrop."
Gross profit margin contracted to 44.3 percent from 47.2 percent a year earlier, on higher sales costs and operating expenses. Net income fell to $88 million, or 11 cents per share, from $329 million, or 36 cents, a year earlier.
The company painted a grim outlook for fiscal 2009, which started on July 1. Chief Financial Officer Mike Lehman said he did not expect Sun to post a net profit in the first quarter as it must take a $100 million restructuring charge for previously announced layoffs.
Sun also forecast "a slight decline" in total revenue in the first quarter, and expected U.S. declines until at least the second half of fiscal 2009. It expects modest, low single-digit overall growth in revenue for the full year.
"We don't expect a lot in the U.S., even in the second half of the year," Sun Chief Executive Jonathan Schwartz said, citing the U.S. financial services crisis as one problem.
"When you've got a $100 million customer that is not going to be growing its IT purchases, but instead take it down 30 percent, that's a lot of customer acquisition to make up," Schwartz said.
Sun's shares fell $1.28 to $9.35 in heavy NASDAQ trade. So far this year the stock has lost 41 percent, compared with a 19 percent increase for IBM. Shares of another Sun rival, Hewlett-Packard (NYSE: HPQ), have fallen 11 percent, while Dell (NASDAQ: DELL) is about flat over the same period.
"There's no question the challenging U.S. macro environment has hindered our ability to grow the top line and we've got a greater share of our business in the U.S. than many of our peers," Schwartz said.
He said customers held off on making large purchases of its high-priced, high-margin SPARC computers in the United States, reflecting what he described as "economic anxiety" rather than competitive pressures.
Sun reported profit excluding items of 35 cents per share for the June quarter, at the high end of preliminary estimates it released on July 15. At the time, the Santa Clara, Calif. company said it expected fourth-quarter profit excluding items of 25 cents to 35 cents and revenue from $3.73 billion to $3.8 billion.
Sun also said on Friday that its board authorized an additional repurchase of up to $1 billion of outstanding common stock.