I noticed that Market Pulse stock picking guru Bernard Schmitt put Sun Microsystems on his “closely watched” list, ultimately tagging Sun’s stock as a “bearish” one.
Why? He says he doesn’t like the company’s fundamentals; doesn’t like the stability of the software server market, where Sun historically makes it hay; and doesn’t trust a company that keeps slashing jobs but doesn’t seem to have a decent blueprint for long-term growth in an industry that is squeezing server makers out.
But will Jonathan Schwartz, CEO at Sun, may have the last laugh. Earlier today Sun came out with its fiscal fourth-quarter guidance numbers that came in well within Wall Street’s expectations.
Here are the numbers. Sun forecasts earnings of 5 cents to 15 cents per share in the quarter ended June 30, or 25 cents to 35 cents per share excluding certain items.
Analysts polled by Thomson Financial expect a profit of 27 cents per share. Sales numbers look decent, too. Sun estimated revenue of $3.73 billion to $3.8 billion for the quarter, compared with $3.84 billion in the year-ago quarter – not bad in a tough economic climate for business spending.
Investors were pleased. Sun shares were up $1, or 11.4 percent after the news came out, to $9.80 in after-hours trading, after finishing regular trading up 2 cents at $8.80.
I’m not convinced that the company’s belt-tightening campaign could pop investor interest in Sun by 11%. True, the company did slash 2,500 jobs last month, or about 7% of its workforce. Maybe the better reason is that Sun, like a lot of U.S. companies, is doing better overseas than it is here at home. Said Schwartz "The US economy presented Sun with significant challenges in the third quarter, masking our progress in developing nations and economies across the world. But with double-digit year-over-year growth in India and Brazil, and triple digit billings year-over-year growth in our energy efficient, Solaris-based Chip Multi-Threading (CMT) systems, Sun made considerable progress during the quarter."
Sun is betting a lot of chips on the burgeoning, but commercially unviable to this point, open source software trend. The company, which had been experiencing a decline in software server sales in recent years, is making some of its servers available on the open source platform. The jury is out on how effective and popular open source will be, but that’s not stopping Sun. "We continue to invest in the future, created by open alternatives to proprietary technologies, best exemplified by the acquisition of MySQL. The world is moving to open source innovation, and Sun continues to lead that revolution,” adds Schwartz.
Halfway through 2008, Schwartz is walking the walk. But if his open source bet doesn’t pan out, look for more jobs to be cut, and profits to fall again.