Sun's Offering More Shadow Than Light

Its 'metamorphosis' hasn't charged its stock. Investors will eye Sun's weather vane for direction.
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Sun Microsystems

(SUNW) - Get Report

logged a busy fiscal fourth quarter as it initiated a host of buyouts, including a

$4.1 billion takeover of

StorageTek

(STK) - Get Report

, but the company's stock continues to languish.

The past 12 months have again proved painful for holders of this technology stalwart, with shares trading at exactly the same spot they were a year ago and down 28% so far in 2005.

The company reports fourth-quarter results after the bell Tuesday, with analysts expecting Sun to break even on EPS with sales of $2.98 billion, on average, according to Thomson First Call. During the same quarter last year, Sun lost 5 cents a share, excluding charges and one-time gains, on sales of $3.11 billion.

Although sales are expected to drop from a year ago -- its stock hasn't moved in the same time frame -- this is a different company. Sun has pushed ahead with its multiyear transformation, this time into a kind of

computing utility company, and has finally evolved into what it says is the revenue growth stage.

The Santa Clara, Calif.-based company has become active again in the merger arena, ponying up

$387 million in cash for

SeeBeyond

(SBYN)

and $25 million in cash for

Tarantella

, in addition to the StorageTek purchase. The company has even started advertising again.

Still, this is a company that continues to disappoint investors.

Sun missed Wall Street's financial estimates in its previous quarter as product revenue dropped. At the time, company executives were optimistic, saying Sun remained on track to hit cost-reduction and operational goals for the full fiscal year.

In Tuesday's report, expect to hear more about Sun's plans to contain costs and spur revenue in the next 12 months. In addition, the company should offer an update on its deepening partnership with chipmaker

Advanced Micro Devices

(AMD) - Get Report

, its progress on recent acquisitions, and interest in the Solaris 10 operating system.

But it's the forest, not the trees, that may grab the most attention. Analyst David Wong of A.G. Edwards said investors are more interested in Sun's overall direction than in whether the company hits Wall Street's financial targets.

"The real catalyst for the stock will be any changes in strategic direction or any major acquisitions that could provide secular growth expansion for Sun, which we continue to believe will be in the area of software," Wong said in a Monday research note. His firm and/or its officers have a short position in Sun's stock.

More acquisitions could be predicated on Sun making its own stock a better and more valuable currency because it has already doled out half of its $7.4 billion bank account on its recent acquisition spree. This, in turn, could be predicated on more people buying into Sun's vision of where it's headed. The tech survivor now has a new fiscal year in which to make this happen.