... here is how today's The Wall Street Journal reports the latest on Sun ...
October 8, 2001
Sun Microsystems Will Cut Jobs As 1st-Quarter Sales Plunge 43%
By DON CLARK, Staff Reporter of THE WALL STREET JOURNAL
Sun Microsystems Inc., announcing its first major layoffs ever and at least a 43% plunge in fiscal first-quarter sales, predicted it may not return to profitability until the period ending June 2002.
The big computer maker's forecast underscores the widening pessimism about business conditions following the events of Sept. 11. Sun, a once-reliable performer that has disappointed Wall Street lately, must now hope for an economic recovery that will convince companies to start spending again on new technology projects.
Sun, of Palo Alto, Calif., posted its first loss in 12 years in its fiscal fourth quarter and had already indicated a loss was likely in the period ended Sept. 30. On Friday, company officials disclosed that sales virtually stopped following the terrorist attacks, disrupting a month that typically accounts for half of its quarterly revenue. Now, it is unclear if the new computer orders Sun expected will be placed in the current quarter or later, company officials said.
As a result, Sun said it expects to report revenue for the fiscal first quarter of $2.7 billion to $2.9 billion, compared with $5.04 billion in the year-earlier period and down at least 28% from the $4 billion reported for the fiscal fourth quarter, which ended June 30. It said it expects a loss excluding nonrecurring items of five cents to seven cents a share, compared with year-earlier profit of 30 cents. Analysts' consensus estimate for the most recent quarter was for a four-cent loss, according to Thomson Financial/First Call.
To align costs with lower revenue, Sun said it would lay off about 3,900 employees, or 9% of its work force. It will also close excess facilities. The actions will result in a $500 million charge against fiscal second-quarter earnings, and are expected to reduce the company's operating expenses by $125 million to $150 million by its fiscal fourth quarter, ending in June 2002.
"We've done a lousy job in the last few quarters of being predictable," said Ed Zander, Sun's president. "We need to get back to the kind of size that the industry will allow us to grow in."
The company's stock reacted positively to its actions. In 4 p.m. Nasdaq Stock Market trading Friday, Sun shares were up 6%, or 58 cents, at $9.87.
Kimberly Alexy, an analyst at Prudential Securities in New York, said she was somewhat disappointed that Sun didn't cut its head count even further. But she says its stock should benefit from the fact that future negative surprises seem less likely, with analysts lowering their forecasts for the next few quarters.
Sun benefited disproportionately from the Internet boom, with its computer servers selling particularly well to telecommunications-related companies and financial-service firms. In 2000 and 2001, it signed long-term leases to arrange manufacturing lines and other facilities to accommodate growth it forecast.
Instead, its primary customers went into a tailspin. Indeed, two big Sun users, Exodus Communications Inc. and Excite At Home Corp., filed for bankruptcy-court protection last month. Some failed dot-coms are now unloading unneeded Sun machines, a phenomenon called gray-market sales, further hurting demand and pricing for new Sun systems, Mr. Zander said.
As the economic slump widened, companies pushed back other projects that could use Sun systems, such as the installation of programs to automate their sales and marketing operations. Ms. Alexy and other analysts are optimistic that information-technology budgets will loosen enough for Sun to turn profitable next spring, though that "is not a slam-dunk," she said.
Sun is doing well competitively, with its hardware rivalry largely narrowed to International Business Machines Corp. Both just introduced new high-end servers, which could increase the companies' competitive edge over other systems, said Daniel Kunstler, an analyst at J.P. Morgan. But economic uncertainty and new technology might lead some customers to rethink their deployment strategies, pushing out major new spending to later in 2002 or beyond, Mr. Kunstler said. |
