Sun Microsystems (SUNW) 18.67 -1.80: The market just got its first taste of what a major June quarter
earnings warning can look like. In its mid-quarter conference call, technology bellwether Sun
Microsystems announced it now expects fourth quarter revenue to come in between $3.8 billion and $4.0
billion. Relative to current consensus estimates of $4.36 billion, the revised guidance constitutes a topline
shortfall of between 8.3% and 12.8%. Not surprisingly, the bottom line doesn't look any better. SUNW
now expects pro forma fourth quarter earnings between $0.02 EPS and $0.04 EPS. On a GAAP basis,
these results should be just slightly better than break even for the quarter. Earlier today, Goldman Sachs
analyst Laura Conigliaro cut her full year 2002 estimates for SUNW citing three primary factors: 1) weak
demand in the U.S. that's beginning to spread abroad, 2) a transition in the company's product cycle, and
3) a tougher pricing environment. Admittedly, the cut to estimates was very well timed, but according to
SUNW only one of the former factors is responsible for its Q4 warning. "The news is Europe" stated
SUNW management on the conference call. "Demand in Europe tailed off more than we thought it
would." On the issue of product cycle, management repeatedly dismissed the notion its transition to
UltraSparc-3 was contributing to weaker than anticipated performance. Instead, SUNW placed the blame
on a broadly weak macroeconomic environment that was "stabilizing in the U.S." but again weaker than
expected in Europe. SUNW also declined to identify pricing pressures as a problem. Fourth quarter gross
margins are expected to be roughly in line with margins for Q2 and Q3. In the regular session, SUNW
traded off 8.8% on higher than average daily volume. Since the conference call, SUNW has dropped
another 6% in late trading.-- Michael Ashbaugh, Briefing.com |
