Posted on 01/23/2007 4:50:34 PM PST by nickcarraway
Sun Microsystems Inc. returned to solid profitability Tuesday after years of red ink, easily exceeding Wall Street's tepid expectations thanks to the growing popularity of its corporate computers and its newest operating system.
But many analysts remained wary of the notoriously cyclical company. They say Wall Street will only be convinced of Sun's turnaround when it posts healthy profits for at least two consecutive quarters.
For the three months ended Dec. 31, the server and software maker earned $126 million, or 3 cents per share, up from a net loss of $223 million, or 7 cents per share, in the year-ago period.
Fiscal first-quarter revenue totaled $3.57 billion, up 7 percent from $3.34 billion in the year-ago period.
Excluding special expenses, such as $58 million in stock-based compensation charges and $26 million in restructuring costs, Sun earned $148 million, or 4 cents per share.
On that basis, which does not comply with generally accepted accounting principles, analysts surveyed by Thomson Financial expected the company to earn $26.4 million, or 1 cent per share, on sales of $3.52 billion.
"It's great to be profitable again, gaining new customers and certainly gaining share," Jonathan Schwartz, Sun's chief executive, said in a conference call.
Sun stock gained 44 cents in after-hours trading. Before the report came out, shares dropped 9 cents, or nearly 2 percent, to close Tuesday on the Nasdaq Stock Market.
As usual, Sun did not provide earnings guidance for upcoming quarters.
Although some analysts say Sun could post an annual profit, critics said the second quarter could be a blip — similar to the second quarter of fiscal 2005. That's when Sun earned 1 cent per share, and executives predicted a comeback. Losses returned the following quarter.
"This could be a turnaround quarter, and I wouldn't discard the company, but I am not happy with everything they're doing and I don't want to speak too prematurely," said Rick Munarriz, senior analyst for media and technology investing at The Motley Fool. "Is that a light at the end of the tunnel or an incoming train?"
Sun Chief Financial Officer Michael Lehman acknowledged Tuesday that quarterly revenue in the United States and revenue from the storage division were weaker than he would have liked. He also said the diminished value of the U.S. dollar — particularly relative to Asian currencies — artificially boosted net income by 1 cent per share.
Lehman said the current quarter would be "challenging" but emphasized that financial results in the second quarter exceeded even the most bullish internal estimates.
"We have a lot of opportunities in front of us and are focused on taking full advantage of momentum we've created," Lehman said.
Sun slashed about 1,600 positions last quarter and now employs about 34,600 workers. It could shed as many as 4,000 in the fiscal year.
Sun spent $507 million in research and development last quarter, down from $541 in the year-ago quarter.
The earnings report follows years of losses — more than $5 billion since 2002 — for Santa Clara-based Sun, one of the highest-flying companies during the 1990s Internet boom.
Sun, which competes against Hewlett-Packard Corp., IBM Corp. and Dell Inc., is known for catering to corporate clients willing to spend liberally on cutting-edge technology. The high-end strategy was lucrative when other companies were healthy — but when the economy soured in 2000, expensive computer servers and advanced technology were seen as discretionary, even profligate.
Last week, Sun went public with an ambitious initiative to get startups to buy Sun's Solaris operating system instead of Linux — widely considered the low-cost choice for penny-pinching entrepreneurs. The campaign focuses in part on getting computer programmers in developing countries to contribute to the Solaris code, on the assumption that they'll get executives to buy equipment with Sun's operating system.
On Monday, Sun announced it would begin shipping servers and workstations later this year that run on processors by Intel Corp. In return, Intel officially endorsed Sun's Solaris operating system. The partnership is likely to boost Sun's market share.
On Tuesday, Sun privately placed $700 million of convertible senior notes with KKR Private Equity Investors, the publicly traded fund of private-equity firm Kohlberg Kravis Roberts & Co. Schwartz said Sun, which has $2.6 billion in cash, would use proceeds to acquire other companies.
Financial analysts questioned the move, repeatedly asking Schwartz in a conference call why the newly profitable company needed extra cash.
"We certainly don't need the money," Schwartz responded. "It's an opportunistic transaction."
Whew. I thought the headline was about THE sun.
Only a matter of time until global cooling becomes the rage.
Whew... Nick, could you change that title to include Microsystems or something?
sell on good news. buy on bad news.. I purchased 800 shares at 3.75@ and sold at 5.75 a nice $1600 profit.. Used my SSI check..... great return....
Yipee. Watch the stock!
And yet Linux is also installed on some very high end, very expensive systems sold by IBM and others.
And it would seem that Sun has come into the open source fold too.
[Solaris 10] The free and open source Solaris Operating System—available on hundreds of x64/x86 platforms and supported for thousands of open source and ISV applications—has the largest installed-base of any other commercial UNIX or Linux distribution on the planet.
I believe that Sun
doesn't want to die like Wang,
they want to be bought
(or "merged") as was DEC.
I wish them luck, however,
I wouldn't buy them.
He they'd be worth buying just to get the kernel engineers they have, that can't be pried out with a crow bar.
Ok, call me a total idiot, because I'm going to ask what I perceive to be a 'dumb question'.
What does Sun actually do? I would ask the same about IBM, but I know they do build computers.
Great news for SUN and good news for the IT ecosystem.
Good ole American Unix is making a resurgence at Sun and Apple while IBM licks its Linux wounds and faces the reality that proprietary software is its most profitable sector.
http://www.eetasia.com/ART_8800450183_499495_b2eed05020070122.HTM?from=RSS
Wow you have to work in PR... Sun Sells Linux Servers, Sun has created their own open source license, Sun has put Java into the open source space. Sun is getting on the open source train (one which has been very good for IBM). As to IBM Licking its wounds I think youre confusing them with SCO..
Last week, Sun went public with an ambitious initiative to get startups to buy Sun's Solaris operating system instead of Linux
This is nothing new, either, Sun has always preferred their customers use Solaris. As for IBM, their stock is still down from where it was when the SCO lawsuit began several years ago. Linux had its 15 minutes, which wasn't very pretty.
Come to think of it,
Sun built the Pope's mail system . . .
It might be worthwhile
to buy Sun only
to see if they wrote trapdoors
into those archives!
Better off leaving them where they are.
My team supports thousands of servers including RedHat Linux, Solaris, HP-UX, and AIX. Solaris is by far the most primitive.
Cool! "Slavery is
freedom" and "war is peace" are,
like, so yesterday . . .
Ummm, I think you lost me there...
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