The Street Seems Disgusted With Sun Micro

Sun Microsystems (JAVA), you are in the dog house.

Sun last night reported extremely disappointing first quarter results, with an equally unimpressive outlook. The company isn’t profitable, isn’t growing and isn’t hitting its restructuring goals. (See transcript.)

The company blamed its woes on the softening U.S. economy, and said it is seeing growth in other geographies, but the Street is not entirely buying that explanation. The analysts are angry, and the restructuring moves the company announced yesterday have not changed their minds. They want to see more progress, and there is going to be little appetite for the stock until CEO Jonathan Schwartz can show some evidence that the turnaround he started when he took over the top job in 2006 is taking hold.

Some excerpts from this morning’s batch of reports on the company:

• Andrew Neff, Bear Stearns: Neff cut his rating on the stock to Peer Perform from Outperform. “When we look at turnaround,” he writes, “we hold companies to a specific standard: we expect them to meet milestones set for investors and get concerned when they miss what we are assuming are conservative goals.” Sun, apparently, has failed his test.
• David Bailey, Goldman Sachs: “We would continue to avoid Sun shares, even talking into account the stock’s significant decline in after-hours trading, as we don’t see any upside in the near term,” he wrote. Bailey says that, despite Sun’s claim that most of the Q1 weakness reflected macro issues, “most of Sun’s top-line miss in the March quarter is company specific.” He says Unix servers are vulnerable in a weak tech spending environment, and he says that the company lost market share to IBM. Bailey, who has a Neutral rating on the stock, cut his target price to $15 from $17.
• Louis Miscioscia, Cowen: Miscoscia notes that while the macro factors were an issue, Sun has not grown computer systems in double digits since 2006, with five quarters of 2% top line growth or worse - and that with currency adding 4%-8% each time. He maintains his Neutral rating.
• Brent Bracelin, Pacific Crest: “There are few reasons to be positive on JAVA, given its mixed track record of execution over the past seven years and high exposure to legacy Unix and tape storage products,” he writes. Bracelin maintains a Sector Perform rating on the stock.
• Shebly Seyrafi, Caris & Co.: He keeps his Average rating, but cuts his target to $14.50 from $17, “as the company continues to have challenges selling products and services in the U.S.”

JAVA today is down $3.40, or 20.8%, to $12.93.

Comments

[sniper6]

The street is disgusted. I am freakin' nauseated. $12.78 as I write this. Get management into the room and release the nerve gas. JAVA- it's official. You suck.

[clitosil]

I think shareholders should demand schwartz's pony tail.

[steveballmer]

They took long enough! I've been utterly disgusted with them for years!