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Sun Micro Looks to Break Through Clouds

Richard Widows

Unlike the countless "enterprise network solutions" start-ups that flickered and died at the turn of the century, Sun Microsystems (JAVA Quote) remains among the living.

In its latest incarnation as a provider of "network computing infrastructure solutions," the company is still in search of an identity and market niche that might provide long-term profitability. Sun may just be able to turn a profit at the end of this decade, according to analysts.

The firm is now hanging its fortunes primarily on the less glamorous and more competitive areas of servers and data storage.

Sun Microsystems checked into the digital world in 1982, when microcomputers were emerging as the successors to doomed minicomputer dinosaurs such as Digital Equipment and Data General. As a dominant player in the then-trendy workstation sector of data processing, its stock rocketed to more than $250 during the zenith of the tech bubble in 2000 before crumbling to less than $50 within a year.

Sun's stock has fluctuated in the $20 to $30 range in recent years before a steady descent to the $3 to $5 area in recent weeks.

A steady wave of less-than-successful acquisitions over the years led to a string of deficits in the middle of this decade. It suffered per-share losses of 47 cents in 2004, 13 cents in 2005 and $1.01 in 2006 before finally achieving a profit of 52 cents in 2007. Then, on flat revenue of $13.88 billion, per-share net eased to 49 cents in fiscal 2008, which ended in June.

In the quarter through September, Sun posted a $1.68 billion loss, or a loss of $2.24 per share, which included a $1.45 billion writedown related to its unsuccessful 2005 acquisition of Storage Technology.

Last month, Sun announced it would slash 5,000 to 6,000 jobs from its payrolls, a reduction of as much as 18% of its workforce.

The consensus of analysts, as can be seen in the accompanying table, is that Sun's net for the current fiscal year will amount to negative 30 cents. They predict the firm will turn marginally profitable -- to the tune of 20 cents per share -- next year.

The Street.com Ratings' financial evaluation algorithms current assign Sun a grade of "D," which equates with a "sell" recommendation.