If You Were Surprised, Maybe You Weren't Paying Attention...
It's as if these guys don't listen to each other. Sun Microsystems (SUNW) blamed Europe on Tuesday for its reduction of revenue and earnings guidance for its current fiscal quarter. There have to be new excuses, of course. Now that there are not many breathing dot-coms to pick on, Sun no longer has that easy target. But those Europeans, they eat such rich, creamy sauces on their food. Yeah, that's it.
"Demand in Europe has tailed off more than we thought about six or seven weeks ago," said Mike Lehman, Sun's chief financial officer, in a thorough telephonic review for analysts of what ails Sun. "That's the news in this whole conference call."
And yet it was precisely six weeks ago that an executive just up the road from Sun's Palo Alto, Calif., headquarters predicted Europe would be next to weaken. In a conference call so brutal that the "it-couldn't-get-any-worse crowd" bid up the stock, Siebel Systems (SEBL) CEO Thomas Siebel predicted that Europe would begin to see as lousy a corporate IT spending climate as the U.S. had seen.Siebel's best customers presumably overlap a bit with Sun's best accounts: Big businesses with big computing needs buy sophisticated software programs to manage their sales and customer-service functions as well as powerful servers to keep things humming. Lehman could have saved himself and Sun investors a lot of trouble by asking Tom Siebel what he was seeing six weeks ago that was so problematic in Europe. For what it's worth, Siebel's shares rose 37% to $46.44 after it reported earnings on April 18. That proved to be overly exuberant, as those shares closed Thursday at $45.36. Sun's shares closed April 19 up 11% at $20.71. Thursday, Sun's shares set at $16.47, up 1% on the day.
Troika Was Worse Than Dead MoneyCasual observers might believe that the fear Oracle (ORCL) will disappoint investors in the quarter that closed Thursday is new news. In fact, it's just that CNBC apparently had nothing else to discuss on a slow-news Thursday. But it was the topic of discussion here a month ago when James J. Cramer called the troika of Sun, Cisco (CSCO) and Oracle "dead money." Turns out it was worse. The troika traded for an average of $18.50 then; Thursday, the three had an average closing price of $17.01. I pointed out at the time that share prices, of course, are meaningless. More meaningful, I argued, are relative valuations, and Oracle traded at a much lower multiple to its expected calendar 2001 earnings than the others. Interestingly, the situation hasn't changed much, despite the turmoil at Sun, the renewed enthusiasm for Cisco and the doubts about Oracle. Sun's stock, down 16% since May 4, actually trades at a higher multiple now because estimates of its earnings have fallen, from 35 cents per share a month ago to 25 cents today, according to Multex.com. Cisco's shares are flat; its earnings estimates actually have risen by a penny, and the forward multiple remains stratospheric, at 113 times current-year earnings. But the real story remains Oracle, whose shares are down 8%, whose earnings estimates have been trimmed by just a penny, to 43 cents, and whose multiple remains relatively low, at 36 times current-year earnings forecasts, vs. 38 times in early May. Unless the company totally screws up, it's unusual for Oracle's shares to stay low for more than a year. Its valuation is reasonable only in comparison to its fellow fallen idols, of course, but it could start to look downright cheap for the long-term investor as each day goes by that it doesn't preannounce a lousy just-ended quarter.
Seeing Clearly at Research FrontiersA column here Wednesday on the 36-year-old development-stage company Research Frontiers (REFR) noted that the firm is a favorite of short-sellers as well as more optimistic shareholders, many of whom like to mix it up on message boards devoted to the stock, affectionately known as Reefer, for its ticker. The fans have been emailing in force. Some of their questions and my answers follow:
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