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Home About Sun Investor Relations Q3FY01 Mid Quarter Update Conference Call Transcript
- Q3FY01 Mid Quarter Update Conference Call Transcript
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Q3FY01 Mid-Quarter Update Conference Call Script February 22, 2001
Mark:
"This conference call script contains projections and other forward-looking statements regarding future results or the future performance of the Company, including statements related to Sun's business model, financial strategy and market opportunities, our longer term vision, strategy and market share positioning, our R&D priorities and growth opportunities, the ongoing, worldwide buildout and useage of the internet infrastructure, Sun's efforts to retain our competitive advantage one, two and three years from now, expected growth in R&D spending for the third and fourth fiscal quarters, our intent to slow the growth rate of general and adminstrative expenses and other parts of our business to reflect lower revenue growth rates, our intent to slow the rate of overall hiring and expected hiring numbers for the third and fourth fiscal quarters, expected revenue growth rate for the third quarter, our expected growth rate compared to our competitors, our expectations to continue gaining market share, expected overall gross margins and estimated operating earnings per share for the third fiscal quarter, expectations to be shipping new Ultrasparc-based proudcts in volume in the fourth quarter, our intentions to increase investments in key areas while ensuring appropriate returns to our shareholders and our intent to buy back up to another $1.5 billion in Sun common stock in the open market. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially. Factors which could cause actual results to differ materially from those contained in our projections and forward-looking statements include: general economic conditions, adverse changes in market conditions both in the United States and internationally, failure to timely develop, produce and sell new products and services, lack of acceptance of Sun's new products and services by customers, failure to reduce costs, inability to hire and retain quality employees, increased competition and pricing pressures, inability to manage growth and risks associated with integrating acquired companies. Please also refer to Sun's periodic reports that are filed from time to time with the Securities and Exchange Commission including our annual report on Form 10-K for the fiscal year ended June 30, 2000 and our quarterly report on Form 10-Q for the fiscal quarter ended October 1, 2000.
INTRODUCTION
Mark:
Good afternoon! Thank you for joining the Sun Microsystems mid-quarter update conference call. I am Mark Paisley, Sun's Director of Investor Relations. With me today is Ed Zander, Sun's President and Chief Operating Officer and Mike Lehman, Sun's Vice President of Corporate Resources and Chief Financial Officer. The purpose of today's call is to give you a pulse of the business thus far into our third quarter, FY2001.
If you wish to hear a live braodcast of this conference call, you can log onto our website at www.sun.com. We will also be posting the content of this call script on our web site.
During this conference call we will make projections or other forward-looking statements, regarding future results or the future financial performance of the Company. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially. I'd like to refer you to Sun's periodic reports that are filed from time to time with the Securities and exchange Commission (including the Company's form 10-K for the fiscal year ended June 30, 2000 and Forms 10-Q for the fiscal quarters ended, October 1st, 2000 and December 31st, 2000). These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
So, with that preamble behind us, I would like to turn the call over to Mike.
Mike:
Thanks, Mark.
I'd like to take a minute to put my remarks into perspective. As most of you know, during Sun's annual industry and financial analyst meeting just sixteen days ago, I gave an update on our business model,financial strategy, and market opportunities. Ed and I also spent quite a bit of our time outlining our longer term vision, strategy, market share positioning, our R&D priorities and growth opportunities. We are quite confident in our strategy, and are positioned as one of the very few companies that have the intellectual property, scale and relationships to benefit from the ongoing, worldwide buildout and useage of the internet infrastructure.
From that perspective, nothing has changed in the past two weeks. We have a longer term view than many people who are listening to this call. We have an obligation to our shareholders, employees and partners to make the right tradeoffs between short term aberrations and longer term trends.
The update that I'll give you for Q3 should be looked at in that broader context. We are here to make the investments that will ensure that Sun will retain its competitive advantage one, two and three years from now. We are much less concerned about the near term impact of a US recession on our Q3 financial model. This US recession is what we and others in our industry are coping with. In our collective experience at Sun, we have not seen such a widespread and sudden change in the overall demand picture in the US as we are witnessing today. We do not determine overall macroeconomic policy, we do not set interest rates or determine consumer confidence. We must now adjust our business plans as best we can to changing economic conditions, as we have done in the past. This is not a new thing; over the last 14 years, we have adjusted our business plans to reflect Asian crises, European weakness, and the like. We are not going to over-react to the near term uncertainties. We are going to grow our R&D spending in Q3 by north of 20% on a year over year basis. We are slowing the rate of growth in G&A and other parts of our business to reflect the lower revenue growth rates. We will continue to grow our R&D spending at a signficant rate in Q4 vs. the prior year, as the creation of intellectual property is one of the cornerstones of our competitive advantage. We are slowing the rate of overall hiring in the company, and ensuring that we have the right people in the right positions in Sun to drive our growth. During Q3, we will probably addbetween 1500 and 2000 people in key positions in the R&D, sales and enterprise services parts of the business. In Q4, we currently expect to add less than 500 people in carefully selected areas.
Turning back to the Q3 income statement, it is more clear now than two weeks ago that the recessionary conditions in the US are having a continued, negative impact on IT spending. Business outside the US continues to track our expectations. However, with around 50% of the revenues coming from the US, those numbers still drive the overall results. We now expect that Q3 revenues will exceed last year's Q3 revenues by 10-13%. Keep in mind that last year's comparison is pretty difficult, as such revenues grew by more than 35%. I also believe that the absolute results are not as important as the relative results. Even at the revenue levels just mentioned, we will continue to grow anywhere from 2-3 times faster than our principal competitors. We are gaining market share, even in this difficult economic environment. The main impact on our financial model of the lower revenues is on the gross margin line. Overall gross margins are subject to volume, as volumes drive factory absorption among other things. We now expect that the overall gross margin rate for Q3 will be around 45%, down 2-3 points from Q2. As a result, it now looks like the operating EPS for Q3 will be in the range of $.07-$.09 cents. Given the revenue levels we are now expecting for Q3, and given the previously stated intention to invest for future growth, it is not practical to entirely offset the lower gross margins by spending reductions.
Turning to Q4, if you are truly listening to what I have been saying, you will appreciate that we are not in a position to give you clear guidance regarding that quarter's demand picture. We do expect to be shipping new Ultrasparc-based products in volume in that quarter, as we work with our partner to acquire additional supplies of the new microprocessor chipsets. As mentioned above, we intend to increase investments in the key areas that drive long term growth, but we are carefully monitoring all aspects of our investments to ensure we provide appropriate returns to our shareholders.
Finally, today, we are announcing an additional stock buyback program. Sun's board of directors and management believe the stock is undervalued and we are going to buy back up to another $1.5B of stock in the open market. We believe that this is one of the best investments we can make right now and further underscores our commitment to shareholder value.
Mark:
Thank you for joining us today. As always, I will be back in my office shortly to respond to any further questions. My number is 650-336-2238.
Finally, we are again providing the "PostView" service this quarter. If you joined us late, or wish to hear any part of the conference call again, you can call the Postview service any time after 5:00 tonight, Pacific time, to hear a recording of this conference call. The phone number for Postview is (800) 475-6701 or (320) 365-3844 and you must enter the conference reservation number "572511" on your touch tone telephone.
Goodbye. |
