Sun Microsystems
Dow Jones Newswires -- October 12, 1999
DJ Computer Makers' 3Q Earnings Seen Mixed Amid
Y2K Caution
By John Hechinger
BOSTON (Dow Jones)--The nation's top computer makers are expected to report mixed
third-quarter earnings amid nagging fears about year-2000 spending, supply problems due to the
Taiwan earthquake and intense price competition.
Investors are watching closely for any Y2K effects in the just-ended quarter. Don Young, an analyst
at PaineWebber Inc., said the September quarter could actually spook investors if results are too
strong because the surge would suggest that corporations have been ratcheting up their computer
spending in advance of Y2K. That, said Young, would be a harbinger for sharp cutbacks in the
fourth quarter and into next year.
Analysts believe revenues at International Business Machines Corp. (IBM) and Hewlett-Packard
Co. (HWP) could fall short of expectations. Compaq Computer Corp.'s (CPQ) earnings are
expected to slip amid fierce personal-computer competition.
The bright spot is expected to come from Sun Microsystems Inc. (SUNW). Powered by its strong
business with Internet-related companies, analysts believe Sun is poised to beat expectations. "Sun is
now viewed as the Microsoft of the Internet," Young says.
Gary Helmig, an analyst with SoundView Technology Group, says investors are skittish about IBM
because Savoir Technology Group Inc. (SVTG), which distributes IBM's AS/400 mid-range server,
recently warned of disappointing third-quarter earnings. Some analysts are also expecting a
slowdown in IBM's rip-roaring computer-services business because of concerns that corporations
are deferring projects until after December 31.
Helmig says he has already adjusted his projections downward and isn't worried about the quarter.
Noting that the AS/400 represents less than 5% of IBM's revenues, he says fears are overblown.
And he says many of IBM's contracts are "annuities" for essential services, such as maintenance,
which won't be affected.
Helmig estimates that IBM will report $21.5 billion in third-quarter revenue, up 7% from last year's
$20.1 billion. He says his 1999 figure is "a couple of hundred million" less than most analysts expect.
Net income should increase 13% to $1.69 billion, or 90 cents a share, from $1.49 billion, or 78
cents, in the year-ago period.
Hewlett-Packard Poised For Revenue Dip
Hewlett-Packard has already braced investors for some glitches. Its new chief executive, Carly
Fiorina, warned that earnings may suffer in the company's fiscal fourth-quarter, ending Oct. 29. She
blamed lower-than-expected U.S. sales of computer servers and supply problems resulting from
Taiwan's recent earthquake.
Those problems, Fiorina said, could cause H-P's revenue growth for the quarter to come in at the
low end of its earlier expectations, closer to 10% than 13%.
At the same time, Fiorina unveiled a reorganization of H-P's business structure, to shuffle the
responsibilities of her four immediate subordinates and to shake up the sales force in H-P's server
division.
With that backdrop, Steven Milunovich, analyst with Merrill Lynch, isn't expecting a spectacular
October quarter. He is looking for revenue of $11.27 billion in the quarter, up 10% from $10.25
billion in the same period last year. He is projecting net income will rise 10% to $818 million, or 78
cents per share, from $746 million, or 70 cents, in the year-ago period. (Both sets of figures are
adjusted to account for the expected spin-off of Agilent Technologies Inc., H-P's
test-and-measurement business.)
PaineWebber's Young says the third quarter should be another rocky one for Compaq. The
company continues to struggle amid competition from IBM and Dell Computer Corp. (DELL). And
Compaq is suffering from delays in the introduction of a high-end server.
On the bright side, however, analysts believe Compaq seems to have been able to retain most of its
market share in the U.S. - though at the expense of its profit margins.
Young projects that Compaq will report third-quarter revenue of $9.52 billion, up 8% from $8.79
billion in the same period last year. Net income should fall 21% to $91 million, or five cents a share,
from $115 million, or seven cents, last year.
Meanwhile, John B. Jones Jr., an analyst with Salomon Smith Barney, marvels at Sun Microsystems'
knack at connecting with its customers. The server specialist is winning more than its fair share of
Internet sales, in large part because of its early position as a leader in the marketplace.
In Sun's fiscal first quarter, ended Sept. 30, Jones expects revenue of $3 billion, up 20% from $2.49
billion last year. Net income should more than double, to $256 million, or 31 cents a share, from
$114 million, of 14 cents. Last year's figure included an acquisition-related charge; without the
charge, net income would have hit $197 million, or 25 cents a share. And, Jones says, "there may be
some upside to those numbers."
-By John Hechinger 617-654-6861 |
