Skip to main content

Sure things have been something of a rarity in the technology sector lately. So relish Wednesday's earnings reports from Unix leader

Sun Microsystems


and storage king




EMC is scheduled to report earnings before trading starts Wednesday. Sun reports after the close. And in neither case is anyone on Wall Street expecting a disappointment on either the top or bottom lines. That's a good thing. A miss by either company could have disastrous repercussions for not only those stocks, but for the entire technology market for which they act as bellwethers.

Global Tech Buildout

Despite increasing competition, both companies have been dominant forces in their respective markets, benefiting from a massive boom in spending by businesses seeking to build out their technology infrastructures in the Information Age. And the successes of EMC and Sun have bolstered a well-rehearsed argument that those companies are protected from any slowdown in spending by corporations, which are generally portrayed as having little choice in the matter of whether they buy new storage systems or Unix servers.






have shown their soft spots.

The titans of Internet infrastructure

But Sun and EMC? Never.

"I think they'll beat my numbers," says

A.G. Edwards

analyst Shebly Seyrafi. "Generally, they give guidance they can beat. And even if you put a penny above those, they'll still beat it." (A.G. Edwards hasn't underwritten for either company.)

So far that's been the case, especially for Sun. The company stunned Wall Street in July when it reported revenue of more than $5 billion for its fiscal fourth quarter -- an astonishing 42% gain from the prior year. And observers think there's no way that performance won't spill into its first quarter of fiscal 2001. Sun's order backlog had rocketed from $1.2 billion to more than $1.8 billion in July, so it's clear that the business has been there for the taking.

"They had great visibility into the quarter because of that backlog," says Seyrafi. The only thing that's uncertain is Sun's prospects for the current quarter, something that investors will get a sense of by watching whether Sun's order backlog is still growing. Seyrafi puts it this way: "If they made their money by drawing on their backlog, that's one thing. If they made it and grew their backlog, that's another."

Song Remains the Same

Same thing for EMC. Some customers have been suggesting recently that it has been taking some time to get an EMC storage system, indicating order backlogs and strong demand. Because of that,

Deutsche Banc Alex. Brown

analyst Phil Reuppel believes EMC has "a little room for upside on the top line" -- his revenue estimate is $2.23 billion for the quarter -- "and potentially more on the bottom line." EMC's profit margins have benefited from the company's rapidly growing software business, which comprises applications for data recovery, data copying and storage management. (Alex. Brown hasn't underwritten EMC.)

"I'll be looking to see if there are any signs of a slowdown in any of EMC's customer segments," says Reuppel. "A big concern is whether any of the companies that have ridden the wave of growth of the Internet, given the issues in that group, affect any of the infrastructure providers. My sense is that EMC is diversified, but I'm looking for more comfort there."

When Dell warned of slowing sales and earnings growth early this month, it noted that dot-com customers were the biggest single cause of the weakness in its small-business segment. Still, EMC's storage servers are generally priced out of the reach of the smaller Internet firms.

Analysts polled by

First Call/Thomson Financial

expect EMC to earn 19 cents a share, vs. last year's 14 cents. Consensus expectations for Sun sit at 26 cents a share, up from the year-ago 17 cents.