Sun Micro keeps revenue forecast low

By Peter Henderson

SAN FRANCISCO: Computer maker Sun Microsystems Inc. on Thursday lowered its forecast for revenues in its fiscal first quarter ending September, saying corporate spending on technology may actually be weakening.

"We've not seen any improvement in the current IT (information technology) spending environment. In fact, some would say it might actually be worsening," Chief Financial Officer Steve McGowan said during a conference call with analysts, dropping his revenue forecast to the bottom end of the range he named in July.

McGowan said he saw fiscal first-quarter 2003 revenues at about the same level as in the first quarter of fiscal 2002, when revenues were $2.86 billion and at the bottom end of the range he gave in July, of a 10 percent to 15 percent from the fourth quarter's $3.4 billion.

Shares of Sun fell in after hours trade to $3.70 on Instinet from a Nasdaq close of $3.83, although some investors said the glum outlook was no surprise and said Sun was being hit by forces roiling the entire industry. Shares of Sun have fallen more than 90 percent from their 2000 high as the technology bubble collapsed, along with the dot-coms that swarmed to buy Sun's powerful server computers to manage their businesses and the Internet sites.

Now Sun customers are being wooed by manufacturers of smaller, cheaper computers based on Intel Corp. chips and running Microsoft Corp windows hardware, and it also faces hot competition in its traditional market for high-end machines running Unix software.

"The unanswered question, the only question really, is whether IT spending has modestly deteriorated or whether they are losing share, and we don't know," said Charlie Wolf, an analyst at Needham & Co., who cut his forecast for Sun to a 4-cent loss per share in the quarter from a loss of a penny.

But Sun has not suffered alone as the economy contracted. "We just see big tech sales as a hard place to be," said Steve Ross, an analyst at Sun shareholder John Hancock Technology Fund. The call was in line with his expectations on Sun, though he added, "If you own it, you're not too happy."

A poll of analysts by Thomson First Call put Wall Street expectations for the quarter, before the call, at $3.07 billion with Sun seen reporting somewhere between nil and a 2-cent loss per share, before items. McGowan did not specifically update his previous forecast of a slight loss per share for the quarter, but he reiterated that the gross profit margin would be flat in the first quarter with the fourth quarter, when gross profit margin was 41.1 percent, which suggested a wider loss.

McGowan said the drop in revenue from the fourth quarter would not be significant enough to hit margins. He said that component pricing was favorable and that discounts made in the fourth quarter would not hit first-quarter results. Ken Smith, portfolio manager of the Munder Future Technology Fund, also said the update was not shocking.

"The economy is kind of muddling along. Companies are not loosening up their IT budgets, but it seems like they aren't contracting them," he said.

(Additional reporting by Caroline Humer in New York)

© Reuters