Sun Microsystems Inc this week held its traditional mid-quarter update with Wall Street analysts and confirmed that the company was on track to meet the analyst consensus of about $2.9bn in sales for the second fiscal quarter ending in December.
However, Stephen McGowan, Sun’s chief financial officer, cautioned that the company was only eight weeks into a thirteen week quarter. As such, he was extremely reluctant to offer any kind of view of the product mix that Sun was selling or how economic conditions were varying across different geographies or industries.
He did say that hitting the $2.9bn level would represent a seasonal uptick that was consistent with Sun’s historical trends, but the murmuring among Wall Street analysts in the next few days will probably concern the fact that this uptick is a lot smaller than in past years. Some people just don’t get that it is 1995 in the server market, not 2002, and the bubble isn’t coming this time around to IT like it did the last time.
McGowan also said that Sun’s gross margins were under pressure and would come in a little lower than the levels Sun set in the first fiscal quarter ended in September. This pricing pressure was attributed to the intense competition in the core workstation, server, and storage markets where Sun gets the bulk of its sales. Gross margins are also being somewhat adversely affected by research and development expenses and a number of acquisitions Sun closed in the quarter.
Sun’s CFO reiterated that the company was on track with what it considers as its core goals: remaining cash-flow positive and moving toward long-term profitability without sacrificing investments in R&D, which Sun sees as vital. When pressed by the Wall Street analysts, McGowan affirmed that Sun was indeed cash-flow positive in the current fiscal quarter and that it was going to attain its goal of profitability in the second half of fiscal 2003, which begins in January. McGowan said that given these factors, Sun did not see a need to reduce its headcount further and that it had no plans to do so.
Many Wall Street analysts disagree with this assessment, and would obviously like to see Sun make more money and do so quicker, because that boosts Sun’s stock price. But with Sun sitting at a humbling market capitalization of $12 billion – down incredibly from the $200bn+ level it hit during the height of the dot-com boom – its executives are more concerned with staying in its technology and marketing races with IBM Corp, Hewlett Packard Co, EMC Corp, Intel Corp, and Microsoft Corp than in cashing in their stock or squirreling away profits for some other purpose.