SAN FRANCISCO: Network computer maker Sun Microsystems Inc. may disappoint
investors at a mid-quarter update later this week, analysts said on Monday.
Sun has been on a money-losing jag for the last three quarters as the dot-com
companies which turned to it for equipment to build the Internet went under. But
it sowed hope in January with forecasts that its loss would narrow and revenue
would rise this quarter from the previous one.
Sanford C. Bernstein and Merrill Lynch brokerages said after checks with Sun
resellers that they believed the company might have to admit in a Thursday
conference call that demand, especially in the United States, was weak since
corporations had not resumed spending frozen technology budgets.
They also reported that Sun employees and resellers were bracing for a new
round of layoffs on top of last year's 9 percent cut in the work force, which
cost nearly 4,000 jobs.
A Sun spokeswoman declined to comment on rumors. Sun's shares, which have
risen 6.6 percent in a general technology rally since the beginning of October,
compared to a 14 percent rise by International Business Machines Corp., lost 26
cents or 3 percent on Monday, closing at $8.67 on the Nasdaq.
Bernstein analyst Toni Sacconaghi cut his revenue estimate on Monday for
Sun's fiscal third quarter ending this month to $3.1 billion from $3.3 billion.
He kept his loss per share forecast for the quarter unchanged at 2 cents but
dropped his estimate for the fiscal year to a 9 cent-per-share loss from a
6-cent loss.
Sun aims for progress
Sun's own forecast is a modest sales increase from the second quarter's $3.1
billion, and "progress" on a return to fourth-quarter profit from the
second quarter's 3-cent loss per share, before one time charges.
Forecasts by analysts polled by Thomson Financial/First Call range from break
even to a loss of 3 cents per share, with a consensus forecast of a 2
cent-per-share loss on $3.2 billion revenue.
"Demand in the US appears to be particularly weak, perhaps reflecting
traditional seasonality and a letdown following relative strength last quarter
due to some Sept. 11 push-outs," Sacconaghi wrote.
Sun was having trouble meeting demand for its low-end v880 machine, built to
head off Microsoft Corp's move into the high-end server market, but some
resellers suggested that Sun could miss its forecasts if it did not deliver
products as anticipated, he reported.
Merrill Lynch analyst Steve Milunovich raised similar issues in his report,
although he didn't change his forecast of a 2-cent loss per share on $3.25
billion in revenue. "Business is weak, especially as CIOs (chief
information officers) sit on their hands," he wrote, reflecting Wall
Street's realization that a recovery in corporate technology spending is slow in
coming at best.
"Despite management's trying to avoid more layoffs, employees and the
channel expect cuts. We understand that management is hoping to put off cuts
until summer when its next fiscal year begins, which may be a mistake," he
added.