The Night Watch: Sun Sinks on Sharply Lowered Outlook; BEA Systems Also Hammered

(Updated from 7:30 p.m. EST)

Shares of Sun Microsystems (SUNW) are trading sharply lower in the extended session, after the company slashed fiscal third-quarter earnings and revenue guidance in its midquarter conference call with analysts. In recent trading, the maker of computer storage devices and servers was down 9.3% to $18.88 on Instinet and off 9% to $18.94 on Island ECN.

Earlier this evening, Sun announced that it expects its fiscal third-quarter earnings to fall between 7 cents per share and 9 cents per share, compared with Wall Street's forecast of 15 cents per share. The firm said that revenue would grow 10% to 13%, well short of the 30% that analysts had expected. Citing a lack of visibility, the company did not provide earnings or revenue guidance for its fiscal fourth quarter.

Over the past few days, investors have drenched Sun's stock value amid worries that the company would make just such an announcement in its regularly scheduled conference call. Shares of Sun are behind more than 20% for the week and off 40% for the year.

Noting the weakness in its stock, Sun announced tonight that it would buy back $1.5 billion in shares. "We believe our stock is undervalued," said CFO Michael Lehman on the conference call. "It's one of the best investments we can make right now."

Due to concerns about an inventory pile-up, Merrill Lynch cut its recommendation on Sun to "neutral" from "accumulate" yesterday and scaled back its earnings forecasts for the company. "Economic softness is accelerating non-economic trends that threaten Sun and raises the likelihood that numbers may need to again be reduced," the investment firm said in a research note.

Competitors in the data storage sector, which have been soaked in recent days, were getting wet again in after-hours trading.

Brocade Communications (BRCD) fell 0.5% to $41.75 on Island, having warned last night that revenue growth in the second quarter would be "very modest," perhaps flat. The company also trimmed its 2001 earnings target to 60 cents per share, two cents lower than Wall Street's estimate. Brocade ended the regular session behind 6.2%.

EMC (EMC), which announced today that uncertain economic conditions would slow the company's growth in 2001, decreased 5.8% to $38 on Instinet. The stock ended the regular session off 6.1% to $40.35.

In the wake of Sun's announcement, the S&P 500 futures on Globex were down 0.4 to 1257.1, about 2 points above fair value and indicating a bit of strength for Friday's start. The Nasdaq 100 Securities were down 16.5 points to 2035, about 3 points below fair value and suggesting a weak-to-flat opening for the Nasdaq tomorrow.

BEA Systems Beats but Bombs

Despite reporting better-than-expected earnings and revenue for the fourth quarter, applications server company BEA Systems (BEAS) is getting blown apart after the bell. Shares of BEA are down 15% to $35.64 on Instinet and lower 13.6% to $36.25 on Island. Tonight, the software company reported earnings, excluding charges, of 10 cents per share, topping Wall Street's forecasts by a penny. Revenue rose to $256 million from $149.2 million in the year-ago period.

VerticalNet Tumbles to New Low After Hours

Shares of business-to-business outfit VerticalNet (VERT) have dropped to new lows in extended action, on the heels of its fourth-quarter earnings release. The stock had lately shed 14.8% to $3.01 on Island.

VerticalNet reported a fourth-quarter loss of 32 cents per share, excluding noncash expenses, one-time items and preferred stock dividends, compared with 14 cents per share in the year-ago period. The results were not comparable to Wall Street's estimates, which did not take into account the company's sale of one of its units. While revenue increased 18% sequentially, to $40.7 million, the company forecast revenue to decrease to $34 million to $37 million in its upcoming quarter.

Other companies in the B2B space dropped on VerticalNet's news. Ariba (ARBA) slipped 1.6% to $17.59 on Island, while Commerce One lost 1% to $19.13 on the platform.

Egghead.com Cracks a Rally

Online software retailer Egghead.com (EGGS) has popped on the news that its fourth-quarter loss was narrower than Wall Street expected. Shares of Egghead moved up 46.5% to $1.19 on Island. The company reported a loss of 23 cents per share, compared with consensus estimates of a 39-cent-per-share loss. Revenue, however, decreased to $91.6 million from $153.2 million in the year-ago period. The company confirmed tonight that it expects to be profitable in the fourth quarter of 2001.

10 most active stocks on Instinet (6:30 p.m. EST)
Company	Price	Change	Session Volume
BEA Systems (BEAS)	35.64	-6.30	2,832,078
Sun Microsystems (SUNW)	18.88	-1.94	1,250,529
Cisco Systems (CSCO)	26.25	-0.19	520,886
EMC ( EMC)	38	-2.35	505,250
Oracle ( ORCL)	22.63	-0.75	454,716
Veritas ( VRTS)	58	-7.50	426,182
RCN ( RCNC)	8.44	+0.03	375,000
Intel ( INTC)	29.98	-0.01	257,350
JDS Uniphase ( JDSU )	29.81	-0.75	232,446
Juniper Networks (JNPR)	67.25	-2	160,200

This information is provided by Instinet, a wholly owned subsidiary of Reuters (RTRSY). For further information, please contact Instinet at www.instinet.com.

10 most active stocks on Island ECN (8 p.m. EST)
Company	Price	Change	Session Volume
BEA Systems (BEAS)	36.25	-5.69	1,750,088
Sun Microsystems (SUNW)	18.94	-1.88	672,608
Nasdaq 100 (QQQ)	50.55	n.a.	277,660
Juniper Networks (JNPR)	67.13	-2.12	169,904
Cisco Systems ( CSCO)	26.25	-0.19	127,899
JDS Uniphase ( JDSU)	29.88	-0.69	127,399
Oracle (ORCL)	22.75	-0.63	110,059
Egghead.com (EGGS)	1.19	+0.38	89,140
Brocade Communications (BRCD)	41.75	-0.19	84,811
Veritas (VRTS)	58.50	-7	74,766

Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 7 a.m. to 8 p.m. EST.

Confused? TheStreet.com explains how the rules change when the sun goes down in Investing Basics: Night Owl, a section devoted to after-hours trading.

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