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Details Scarce as Sun Stonewalls on Outlook

Updated from 4:20 p.m. EDT:

It was six months ago that tech execs first started complaining that they were having difficulty predicting their future results. Now, half a year later, they're no longer even trying.

Unix systems maker Sun Microsystems (SUNW - Get Report) reported fiscal fourth-quarter results Thursday evening. Sales totaled $4 billion. Earnings per share came in at 4 cents. We know both figures are well below year-ago levels. We know they each were slightly above drastically lowered expectations.

'Comfort Level'

But that's pretty much where everyone's knowledge ends. Following what seems to be a nascent trend on Wall Street, Sun's management team refused to give even the vaguest guidance for its fiscal first quarter on the conference call held after the company's earnings release. CFO Mike Lehman said told analysts that a revenue range would be supplied at the company's mid-quarter update in August. In the meantime, the best that Lehman could do was say that given the current expense structure, the Sun would break even if its sales totaled $3.7 billion in the first quarter of fiscal 2002.

EMC (EMC - Get Report) declined to give guidance when it reported its results on Tuesday. Nortel (NT) did the same on its earnings conference call Thursday evening.

Low Tide?
Sales, earnings ebbing through 2001
Source: company

At the moment, analysts polled by Thomson Financial/First Call expect Sun's first-quarter sales to be just above $4 billion. God only knows where that figure will be Friday morning. Any analyst who dared press the issue received a dose of the yelling, Sun-style. Asked whether he felt comfortable with current consensus estimates, Lehman snapped, "I have no idea what the current consensus is, and I'm not going to comment on any comfort level."

Lehman did say that the company was seeing "signs" that business could improve in the second half of calendar 2001 (the first half of fiscal 2002, for Sun). What are those signs? Besides Sun's expectations of having a full line of UltraSparc III products available by then, Lehman cited the Federal Reserve's interest-rate cuts, whose effect is generally believed to lag by at least six months.

The Emptiness of Language

But CEO Scott McNealy headed off any attempts to read anything meaningful into that prognosis. "Sun is out of the business of predicting macroeconomic direction for any part of the economy," he said. "We're not going to give you any color. We're just wasting our time and your time."

Despite the stonewall on guidance, Sun's management team projected their characteristic confidence on the call. Sun was still gaining market share. And it planned to keep gaining share, said President Ed Zander, who noted the company would go after Compaq (CPQ) and Hewlett-Packard (HWP), whose embracing of an Intel-based server architecture was two years premature and would cost both them dearly.

But it's no wonder Sun is clamming up. Its stock has fallen nearly 50% in 2001 as the company has repeatedly been forced to slash its growth outlook. Back in April, Lehman said Sun expected to grow its revenue by 15% in fiscal 2002, with earnings per share growing at a slightly higher rate. At the company's analyst meeting earlier this year, Lehman had said that the company expected its sales to grow 20% to 35% "for the next two, three years." Sun has been adamant in its claims that its subsequently lowered forecasts do not constitute a change in that long-term guidance.

For the record, Sun's revenue for the fourth quarter fell 20% from the year-ago period, but came in about $100 million above what analysts were looking for. Excluding certain charges, the company earned $134 million, or 4 cents a share. That's a penny above expectations but down 80% from same period last year. Those estimates were slashed following Sun's midquarter update in April, when the company warned analysts that weakness in Europe would weigh heavily on its top- and bottom-line results.

After rising 45 cents, or 3.2%, to $14.44 in regular trading, Sun was edging higher on Instinet, where it was lately changing hands at $14.55.

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