By Donna Fuscaldo
Of DOW JONES NEWSWIRES
The clouds may be parting for struggling computer hardware and software maker
Sun Microsystems Inc. (SUNW).
After posting a surprise fiscal fourth quarter profit late Tuesday and
predicting fiscal 2006 will be a growth year for the company, analysts are
expressing mild optimism that Sun's business could be turning the corner. They
point to Sun's positive book-to-bill ratio, talk of strength with its financial
customers and its recent acquisitions as reasons to get more bullish on the
stock.
"Although we remain concerned about Sun's high costs, low revenue growth and
pending integration risk, operating profitability improved and we think
upcoming acquisitions and product introductions may push the stock higher
within its trading range over the next six-12 months," wrote Joel Wagonfeld, an
analyst at First Albany in a research report. Wagonfeld raised his investment
rating on Sun's stock to neutral from underperform.
Recently, shares of Sun were trading up 2.3%, or 8 cents, to $3.93, on volume
of 34.6 million. Average daily volume is 41.1 million.
Like many technology companies, Sun saw its business suffer steep declines
during the dot-com bust and subsequent technology melt down. Since then, Sun
has struggled to resurrect the company and has focused its efforts on selling
Intel Corp. (INTC)-based servers and attempting to grow its services unit. In
June, Sun plunked down $4.1 billion to acquire Storage Technology Corp. (STK).
With more than $3 billion left in cash, Sun said it plans to make even more
acquisitions.
For its fiscal fourth quarter, Sun posted net income of $121 million, or 4
cents a share, compared with $783 million, or 23 cents a share, a year earlier.
The 2004 fourth quarter included $1.6 billion in revenue from a legal
settlement with Microsoft Corp. (MSFT).
Revenue fell 4.3% to $2.98 billion from $3.11 billion in the year ago fourth
quarter. Analysts had expected Sun to weigh in with earnings of a penny a share
and revenue of $2.98 billion. Sun Chief Financial Officer Steve McGowan said
Tuesday that the company is now focused on growth, profitability and positive
cash flow. He said Sun will reduce its work force by 1,000 or roughly 3% during
the next year.
Richard Chu, an analyst at S.G. Cowen said Sun's fourth-quarter results give
him "confidence" that the company is "on the right track." According to Chu, he
is encouraged by Sun's book-to-bill ratio, but noted challenges lie ahead,
particularly in the integration of its recent acquisitions.
But not every Wall Street watcher was praising Sun Wednesday. Merrill Lynch &
Co. analyst and long-term Sun bear Steven Milunovich said Sun's revenue in the
fourth quarter was light compared with his expectations.
"Sun's year-over-year revenue growth worsened each quarter as comparisons got
more difficult," said the analyst, noting that Sun's 1,000 workforce reductions
won't be enough.
While Milunovich said many analysts are hanging their hats on Sun's upcoming
Galaxy servers using Advanced Micro Devices Inc.'s (AMD) semiconductors as a
revenue driver, he isn't so sure it will improve Sun's current position.
According to Milunovich, his surveys show that a broad base of corporate buyers
don't want to partner with Sun or use its operating system. "Sun's renaissance
in the 1990s was partly fueled by competitors' mistake, which can't be counted
on this time," said the analyst, who rates Sun a neutral.
None of the analysts own shares of Sun, but their firms do intend to seek an
investment banking relationship with the company.
Officials at Sun weren't immediately available to comment.
By Donna Fuscaldo, Dow Jones Newswires; 704-371-4263;
donna.fuscaldo@dowjones.com
(END) Dow Jones Newswires
07-27-05 1103ET
Copyright (c) 2005 Dow Jones & Company, Inc. |
