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Sun Microsystems Burned to a Crisp

SAN FRANCISCO -- The Sun Microsystems (JAVA) revival fizzled almost as quickly as it began, as the computer maker reverted to its erratic performance of years past while announcing red ink and layoffs.

Sun executives blamed a weak U.S. economy for its ills, and insisted the company's business opportunities remain strong.

But the explanation did little to appease investors, who sent Sun's shares tumbling more than 14%, or $2.82, to 13.91 -- a new 52-week low -- in extended trading Thursday.

Sun's weak quarterly results marked the first major failure under the leadership of Jonathan Schwartz and Mike Lehman, who took over as CEO and CFO, respectively, in 2006.

The pair returned Sun to profitability last year, after several years of losses, and promised investors that revenue growth and a 10% operating margin were both around the corner.

But the message on Thursday was that neither goals appeared in sight anymore.

Sun projected that revenue in the fourth quarter would be flat year-over-year. And instead of the 10% operating income targeted for next fiscal year, Sun is now aiming for 7%.

Lehman defended the move in a post-earnings conference call Thursday, as analysts questioned the scrapping of a target that the company had billed as obtainable.

"I have consistently stated for the last couple years that in order to hit the 10% operating income, we needed reasonable but not dramatic revenue growth," Lehman said. Absent that revenue growth, he explained, hitting the target would be more difficult.
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