Chris Kraeuter
Despite Sun Microsystems'(SUNW Quote - Cramer on SUNW - Stock Picks) persistent claims this year that it has finally re-entered a growth phase, Moody's Investors Service cut the company's debt rating to junk status as its strategy is called into question.
Moody's cited "elevated risks" stemming from Sun's purchase of StorageTek, its future M&A plans, and challenges to improved profitability and cash flows "as it shifts its focus from the sale of high and midrange proprietary-based servers and storage products to a broader, more integrated offering of systems, software and services." The New York-based credit rating agency dropped its overall rating on Sun to Ba1 from Baa3 and similarly lowered its rating on $1.1 billion of Sun's unsecured debt to Ba1 from Baa3. The new ratings for Sun are one notch into "junk" status, which means the company represents a greater credit risk and is likely to face higher borrowing costs. The fresh opinion didn't do much to the company's stock, with shares off 2 cents to $3.87 on Friday. For the year, however, the stock is down 28%. Sun has spent the past few years digging out of the dot-com implosion. Executives have spent the year stating that that phase is behind them and they can now look to growing the business again. Sun made several significant moves this year, most notably the $4.1 billion acquisition of StorageTek in June. The company's credit rating was put on review at that time for a possible downgrade by Moody's. Sun followed the StorageTek buy with a $387 million acquisition of SeeBeyond and $25 million for Tarantella. Each of the buys was made with cash, still leaving Sun with a sizable war chest of $4.5 billion. Sun also has spent the year extolling a vision of itself as a computing utility company.
RSS
