Sun's Forecast Sunnier Than Anticipated

Worries about Sun Microsystems fourth quarter may have been misplaced.

The company said it expected to report net income between 5 cents a share and 15 cents a share. Excluding charges, Sun will report earnings of 25 cents a share to 35 cents a share. Wall Street was expecting earnings of 27 cents a share.

Sun also projected revenue between $3.72 billion to $3.8 billion with gross margins of 44 percent to 45 percent.

In a statement, CEO Jonathan Schwartz said that customers are looking toward open source software as a means to save costs in a tough economy. That’s a slightly different spin that what Sun used in May. In May, Sun announced layoffs and reported a disappointing third quarter. The poor economy was to blame at the time. Apparently, IT buyers got open source religion in the last 90 days or so and are buying.

According to Citigroup analyst Richard Gardner, Sun closed deals that slipped from the third quarter in the fourth quarter. Couple that fact with layoffs and Sun was expected to at least meet expectations. However, Gardner questioned whether Sun was a place to put your money.

In a note Gardner said:

At just 10X F12 earnings, JAVA shares are inexpensive. However, value investors are already in the shares and growth investors are not likely to build positions given the 12-month delay in JAVA’s high-end SPARC refresh and a potentially growing disadvantage in demand generation investments. We see long-term value, but only for the most patient of investors.

Nevertheless, someone was putting some money into Sun–even if it was to close short bets. Sun shares were up about 13 percent afterhours.

Comments

[Optimistic Investor]

This is the company everyone loves to hate . Maybe its envy of their ubiquitous software , Java Solaris and now MYsql , or maybe it is their past battle with Microsoft and all those verbal jabs by co-founder Scott Mcnealy . With their open source strategy all the proprietary software vendors must be wishing that Sun would go away . Oracle has to hate the fact that they bought MYsql and I suspect that some tension between the companies has occurred . Ask yourself what technology Dell has contributed to the Industry besides their fast food like production line . As a matter of fact all the big guns are using Solaris and all except Hewlet Packard has signed a licensing agreement even though they too are offering it . Java is in everything except the Iphone which all though is rising is still a small fraction of the overall cell phone business . Sun's CEO has a vision that the developer comunity loves because it allows them to adopt and adapt to any and all environments , write once run everywhere . The challenge as I see it is their marketing which has frankly been dismal . Now that Grantham has left for HPQ that should get better , watchout HPQ . At current stock price a take over or hostile buyout is indeed a possibility but hopefully Sun can thwart any attempts to do that . Any suitors would most likely be the same companies that Sun's initiatives are targeting . A takeover would sell off its parts , shut down open source and pocket the near 4 billion in cash . This would be disastrous for the industry at large as proprietary code would once again rule the day by fragmenting the developer comunity . I applaud their layoffs and continued right sizing which if done several years ago would have stopped the precipitous stock price slide that we have seen . Positive cash flow every quarter but one is a better measure of their viability than current stock price . Obviously I am a believer in their future future success and Schwartz's vision going forward .

[fire_Jonathan]

- Jonathan is a techie and he had no CEO vision what so ever. The stock price went down to the 13 years low validated my statement.

[BeachRider]

A lot of us don't hate Sun, but JAVA management hasn't executed on a high-benefit vision for its future. Having layed off many folks, JAVA has intense detractors (and they are writing in blogs). Solaris itself is drifting, the Open Source play is drifting and the Niagara servers are easy to compare to Intel servers of 5 years past (they are not good for databases and analysis engines, OK as webservers). The StorageTek acquisition is also losing value (much like when IBM bought Lotus). There needs to be good news from Sun in these areas.