Now at 6-Year Low, Will Sun Micro Ever Grow Again?

| About: Sun Microsystems (JAVA)

Sun Microsystems (JAVA) shares continue to sink into the mire ahead of the company’s financial results for the fiscal fourth quarter ended June. The results are due August 1; it’s hard to see how the stock is going to do anything encouraging in the interim.

In a research note Tuesday morning, Bernstein Research analyst Toni Sacconaghi cautioned that the server hardware company is at risk for missing the Street consensus estimates of $3.8 billion in revenue and 27 cents a share. Sacconaghi is forecasting $3.71 billion and 21 cents. Sacconaghi says the Street’s view would mean above-seasonal revenue growth, which he says “may prove aggressive” given that “channel checks highlighted a very challenging quarter for Sun in the U.S.”

Sacconaghi says Sun has vowed to provide FY ‘09 guidance when it reports the quarter; he thinks the current Street view of $14.12 billion in revenue and profits of $1.05 a share are too high. His forecast: $13.99 billion and 95 cents.

Sacconaghi notes that on a constant currency basis, JAVA has seen declining revenues for four quarters in a row. And he sees no quick turnaround, asserting that “the company will find it challenging to boost revenue growth over the next few quarters,” especially if the dollar stabilizes or appreciates.

Meanwhile, he also notes that, despite 7 restructuring plans behind it, and an 8th announced last quarter, JAVA’s operating expense-to-revenue ratio has remained above 40%. Writes Sacconaghi: “We continue to believe that Sun needs to execute a larger restructuring tethered to assumptions of essentially no top line growth rather than ongoing incremental cuts.”

Sun on Tuesday fell 41 cents, or 3.8%, to $10.38; during the session, the stock set a new 52-week low at $10.33, the stock’s lowest level in nearly six years.