US Spending Slams Sun's Q4

Uncertainty in the US economy underpins another tough quarter for Sun

August 1, 2008

4 Min Read
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Suns profits tumbled in its annual results today, as the vendor predicted a tough U.S. spending climate for at least the next six months.

“The biggest variable will continue to be the buying patterns of our large base of U.S. customers,” said Mike Lehman, the Sun CFO, during a conference call this morning. “We don’t expect any growth in the U.S. until the second half of the [fiscal] year, and we don’t expect a lot.”

For the full fiscal year, Sun reported revenues of $13.88 billion, flat compared to the prior year, and in line with analyst estimates. Fourth quarter revenues were $3.78 billion, a decrease of 1.4 percent from $3.835 billion in the same period last year, and in line with analysts’ projections.

Sun’s earnings for the full year were 49 cents per share on net income of $403 million, down from 52 cents and $473 million for fiscal 2007. Fourth quarter earnings were 11 cents on net income of $88 million, down from 36 cents and $329 million in the same period last year.On a non-GAAP basis, Sun reported earnings of $1.34 on net income of $1.1 billion for the fiscal year, compared to earnings of $1.11 and $1 billion for the prior year, above analyst estimates of 82 cents. For the fourth quarter, Sun’s earnings were 35 cents on net income of $275 million, down from 50 cents and $458 million in the fourth quarter of 2007. Analysts had estimated quarterly earnings of 25 cents.

Speaking during this morning’s call, Sun’s CEO Jonathan Schwartz admitted that the vendor’s revenues took a big hit from falling U.S. sales.

"Growth around the world was offset by declines in the U.S. – we have got a greater share of our business in the U.S. than most of our peers," he said, highlighting, in particular, a "fairly challenged" financial services sector.

Sun’s storage business put in a solid, if unspectacular, performance in the fourth quarter, with revenues rising 3.9 percent year-over-year to $664 million.

”We have moved our investment to open storage,” said Schwartz, highlighting growing momentum behind the vendor’s "Thumper" storage/server hybrid, which is at the heart of Sun’s effort to move away from proprietary storage architectures. “[Thumper] grew billings 37 percent year-over-year in Q4 – this was driven by the popularity of ZFS."Despite the ongoing hype surrounding Thumper, sales of the hardware are still relatively modest, according to Sun, which explained that some the hardware generated $120 million of the vendor’s fourth quarter revenue.

CEO Schwartz nonetheless assumed his role of open storage cheerleader throughout this morning’s call, constantly returning to the vendor’s ZFS file system.

”The fact that ZFS is so popular is giving us the opportunity to bring out innovations in Flash memory and next-generation NAS,” he said, in response to an analyst’s question. “So, that’s probably the area we feel most confident about.”

Sun, which is in the throes of a major restructuring effort, has not had the easiest time of it during recent quarters.

Government and consumer-related industries, such as telecom, have proved the most problematic for the vendor during recent months. Specifically in the third quarter, Sun’s systems business took a hit, most notably in high-end tape libraries and high-end enterprise servers.One analyst on this morning’s call also asked Lehman why Sun has "uniquely disappointed" despite recent strong financials from rival vendors such as IBM, HP, and EMC.

”I think it’s pretty unfair to say that we’re the only company that has disappointed in the last six months,” replied the CFO. “We have a number of large customers in the U.S. [and] a number of these customers have been very publicly negatively impacted.”

With 40 percent of Sun’s business tied up in the U.S, Schwartz explained that the vendor is looking to change its business model by targeting emerging markets such as China, India, and Brazil.

”We’re certainly diversifying the customers that we have,” he said. “The ‘mature’ economies of the world are probably most stressed in terms of their linkage to the U.S. economy.”

Sun also used this morning’s call to outline a $1 billion share repurchase program.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.

  • EMC Corp. (NYSE: EMC)

  • Hewlett-Packard Co. (NYSE: HPQ)

  • IBM Corp. (NYSE: IBM)

  • Sun Microsystems Inc.

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