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The sell-off in Sun Microsystems (JAVA) shares today is as much about what they didn’t say as what they did.

What they did say was that Q3 results were once again pretty terrible. Revenue was down 7.1%, and analysts say on a constant currency basis the decline was more like 9%-10%. Compounding matters, the company did not provide any financial guidance, which leads the Street to conclude that any forecast would simply be too grim to put into print. And the company also didn’t give the Street what it really wanted, which was a significant restructuring plan. The Street did come away from the call convinced that a new round of cost cutting is on the way - but they tend not to believe Sun will be aggressive enough, and that it will continue to lose money while its topline shrinks.

The optimists in the crowd point out that the company has about $3 a share in cash, while book value is around $4, providing a floor for the shares very near the current stock price. But value investors are going to remain leery of the shares as long as business conditions continue to deteriorate and margins keep eroding.

Bernstein Research analyst Toni Sacconaghi notes this morning that the company has seen product gross margins tumble to 35.2% from 48% over the last three quarters, down to the lowest level in the history of the company. The lower gross margins reflect a mix-shift to less profitable low-end servers, as well as some incremental pricing pressure: Sun is facing tough competition from IBM at the high end of its business and from Dell (NASDAQ:DELL) and HP (NYSE:HPQ) at the low end. Sacconaghi says that continued margin pressure appears inevitable, especially at the high end, where he estimates margins are north of 60%.

Sacconaghi says it is a positive that the company hinted that a cost-cutting plan is coming, but he notes that the company has carried out 8 restructuring plans over the last 8 years and barely put a dent in operating expenses, which are running at 43.7% of revenue, just a hair below the 45.1% level recorded in 2002. He says the company needs to cut 15% of its headcount - that would be around 5,000 jobs - but adds that he questions whether the company has “the intestinal fortitude to ensure its cuts are large enough.”

Goldman Sachs hardware analyst David Bailey is similarly skeptical, asserting that Sun’s track record with cost cutting suggests that whatever restructuring moves are coming will not be enough to offset gross margin and revenue deterioration “that looks to be long-lasting in the current economic environment.”

Mark Moskowitz, an analyst at J.P. Morgan, advises investors not to be tempted into seeing JAVA as a value play. “The company’s vulnerability to macro-driven budget cuts remains high, and the depressed gross margin profile could become a persistent thorn,” he writes. Moskovitz, who already had an Underweight rating on the stock, says that conditions “could get even worse than we feared.”

Bank of America’s Scott Craig, who actually has a Buy rating on the stock, nonetheless expressed concern for the outlook. “We estimate Sun will operate at a loss for the remainder of the year, and while a restructuring is likely, and implied by management on the call, the potential magnitude is questionable given historical actions,” he writes. “Withing a very aggressive restructuring program and/or a broader strategic change, the stock is likely to be range-bound near term.”

JAVA today is down 65 cents, or 12.29%, to $4.64.