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Sun lowers 3Q targets
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February 22, 2001: 6:00 p.m. ET
Tech blue chip ratchets down previous revenue, earnings forecasts
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NEW YORK (CNNfn) - Sun Microsystems on Thursday lowered its revenue and earnings targets for the current quarter, pinning the blame primarily on the slowdown in the U.S. economy.
In a teleconference with analysts, Sun executives said they now expect revenue for the quarter ending in March to be between 10 percent and 13 percent higher than the revenue it reported in the same period a year earlier.
Analysts had generally expected Sun to post sales of roughly $5.3 billion in the current quarter, suggesting a more than 30 percent increase over the $4 billion in sales it logged during the same period a year earlier, according to a survey conducted by earnings tracker First Call.
The company also is expecting quarterly earnings to come in between 7 cents and 9 cents per share, compared with the Street's most recent expectations for a profit of 15 cents per share, according to the First Call survey.
Sun expects its gross margin to decline by 2-to-3 percentage points from the second quarter to about 45 percent.
Executives at Sun, the No. 1 supplier of the large computer systems, called Unix servers, which are used to power the Internet, laid the blame for the shortfall primarily on the slowdown in the U.S. economy, which has resulted in lower-than-expected technology spending.
 "We have not seen such a widespread and sudden change in demand than we are seeing today," said Michael Lehman, Sun's chief financial officer.
Even though the United States was weak, executives said the company's business in other regions has been performing as expected.
"We are disappointed in one, and only one, thing. That's the U.S. economy," said Ed Zander, Sun's chief operating officer.
Because of the uncertainty surrounding the U.S. economy, Sun executives did not provide financial guidance beyond the current quarter.
And despite the revenue and earnings shortfalls and uncertainty about the remainder of the fiscal year, they said the company intends to continue aggressively spending on research and development, expecting to spend roughly 20 percent more on R&D in the current quarter than during the same period a year earlier, with continued growth in R&D spending in the fourth quarter.
However, Sun will trim its general and administrative expenses, and will slow the rate of overall hiring in the company, according to Lehman. In the third quarter, Sun expects to add between 1,500 and 2,000 people to its ranks. In the fourth quarter, he said that number will be trimmed to less than 500.
The company also plans to buy back about $1.5 billion worth of Sun stock in the open market.
Sun shares rose $1.19 to $20.81 in Nasdaq trade ahead of the call, which was after the close of trading. They fell $1.44 to $19.38 in after-hours trade.
On Wednesday, Merrill Lynch downgraded its rating on Sun shares to "neutral" from "accumulate" and trimmed its earnings forecasts, citing concerns about economic softness as well as non-economic trends that are threatening Sun's growth prospects.
At Thursday's close, Sun's shares stood 67.8 percent below their 12-month high of $64.65 reached in August. 
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