Sun’s steady forecast calms investor jitters

By : |March 8, 2002 0



Peter Henderson

SAN FRANCISCO: Despite tough competition, network computer maker Sun
Microsystems Inc. will keep its promise to boost revenue slightly and inch
closer toward profit in its third quarter ending this month, Sun’s chief
financial officer said on Thursday.

No news was good news to analysts and investors who had feared Sun would have
to roll back its cautious expectations of improvement made a month and a half
ago.

"There is no change from what we said earlier," chief financial
officer Michael Lehman told investors on a mid-quarter conference call, sending
Sun stock in after-hours trade up to $9.15 from a close of $8.83 on the Nasdaq,
where it had lost 20 cents for the day.

"I think everybody is breathing a big sigh of relief. There wasn’t some
kind of disaster," said J P Morgan analyst Daniel Kunstler. Sun issued its
steady outlook after microchip maker Intel Corp. narrowed its revenue forecast,
pushing it toward the high end of the previous range.

Higher valuations
Viewing more predictable business as a precursor to better business, Kunstler
said companies blindsided by the downturn could begin to grow again in the
not-too-distant future.

"It will (be) within a time frame that probably justifies higher
valuations for a number of these companies," he added. However, Goldman
Sachs analyst Laura Conigliaro read more hesitancy into Lehman’s comments on a
slight improvement in revenue than some of her rivals.

"I think that ‘slightly up’ is probably less up than many of the
estimates. But, on the positive side is the fact that, if they do end up
‘slightly up’, they’ll be one of the few companies to achieve that," she
said.

Sun has been on a money-losing streak for three quarters, following the
implosion of the dot-com companies that had turned to it for computers to build
the Internet. It had forecast in January that results in the March quarter would
improve on the 3-cent-per-share loss before one-time items and $3.1 billion
revenue in its second quarter, aiming to return to profit in the June-ending
fourth quarter.

Wall Street expectations for Sun’s fiscal third quarter range from a 3 cent
loss to break even, with the consensus a 2-cent loss on $3.2 billion sales,
according to a poll of analysts by Thomson Financial/First Call.

Sun’s Lehman also said the company was tapping government and other markets
while traditional telecommunications and financial services markets remained
weak. Gross profit margins would improve from the second quarter, Sun would
generate cash from operations, and the company had resumed buying its stock on
the open market, he said.

Sun shares are down 28 per cent since Jan. 1, twice the drop of rival
International Business Machines Corp. "Overall IT (information technology)
spending is still not improving across the board," he said. "The
pricing environment is still pretty nasty out there."

Lehman cautioned that sales would be more weighted toward the back end of the
quarter than the December quarter. "The risk is more so that the orders
come in too late in the quarter to be turned around and revenue
recognized," he said.

Jay Stevens of Buckingham Research Group said that was a normal seasonal
trend. "The key statement was that the backlog was going to be flat, as
they said," he commented. "They’re fine."

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