Sun warns of loss

August 29, 2001: 5:13 p.m. ET

Maker of servers and workstations says it probably will log red in its 1Q

NEW YORK (CNNfn) - Sun Microsystems Inc. warned Wednesday that it will probably post a loss in the current quarter, where previously the maker of servers and high-end workstations had expected to break even.

Wall Street analysts were expecting Sun to log a profit of 2 cents a share excluding one-time items for its fiscal first quarter, on $3.8 billion in sales, according to First Call, which tracks profit estimates. But some analysts this week had said they didn't expect Sun would be able to hit those numbers.

When Sun reported results for its fiscal fourth quarter last month, executives said their planning for the quarter had them "above the pro forma breakeven point," meaning at least $3.7 billion in sales, for the fiscal first-quarter.

But during a mid-quarter financial update Wednesday evening, Chief Financial Officer Mike Lehman told industry analysts that orders so far have been lower than expected and the company is not likely to meet its breakeven goal.

"It will take a very large month of September in terms of demand in order for us to hit the breakeven point," Lehman said. "At this date, I would not count on that happening."

Lehman said order rates in Europe and Japan were particularly weak, while orders in the United States and the rest of the world were tracking near the company's prior expectations.

He did not provide specific revenue or profit targets.

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Sun is the top supplier of mid-priced Unix servers – computers used to power corporate networks and Web sites – and is a leading supplier of high-powered workstations used by scientists, engineers and others.

As have most companies in the data-networking sector, Sun's business has been hurt by a slowdown in capital spending, especially among telecommunications and Internet service providers in the United States who, faced with a slowing and uncertain economy, have either deferred or cancelled many of their new equipment orders.

Palo Alto, Calif.-based Sun also has been facing increased competition in the market for mid-range servers, with high-tech outfits such as IBM (IBM: down $0.82 to $104.13, Research, Estimates) and Hewlett-Packard (HWP: down $0.66 to $23.95, Research, Estimates) substantially stepping up their efforts with aggressively priced systems.

Earlier Wednesday, Merrill Lynch analyst Thomas Kraemer said he was expecting Sun to log a first-quarter loss of 2 cents per share on $3.6 billion in sales. He cited continued weakness in demand in Europe, stable but anemic demand in the United States and continued weakness in sales to large corporations as reasons for the more pessimistic outlook.

On Tuesday, Goldman Sachs analyst Laura Conigliaro trimmed her first-quarter estimates for Sun, which had been in line with the consensus, to a penny per share profit on $3.7 billion in sales. She pointed to anecdotal evidence indicating that continued economic weakness is proving to be a drag on Sun's business as a reason for the reductions.

Sun (SUNW: Research, Estimates) stock fell another 43 cents to $13 in after-hours trading following a drop of 13 cents, or about 1 percent, during the regular session.