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Sun profits evaporate as darkness falls on US economy

Investors run despite $1bn share buyback promise

Sun

Sun promised to buy back $1bn worth of shares from stockholders today as it announced static revenues and a slump in fourth quarter profits.

Revenues came in at $3.78bn for the quarter ending June 30, down 1.4 per cent on the year. Profits collapsed though, coming in at $88m, compared to last year’s $329m. This resulted in earnings per share of $0.11. Once charges were flushed through, including around $100m of restructuring costs, EPS came in at $0.35. Wall Street had expected $0.25 per share.

The figures were generally to the top end of the range the company predicted in a nerves steadying statement it put out two weeks ago.

CEO Jonathan Schwartz said that while it was making “significant improvements across a number of key operating metrics” and was showing good non-US growth, the firm had been battered by “slowing performance” in the US.

But Schwartz’s take, and the better than expected EPS, did little to steady investors' nerves, and Sun shares were already down over 8 per cent in pre-market trading at time of writing.

This despite the firm announcing it would spend another $1bn repurchasing shares. Sun said that with $3.3bn in cash and marketable securities on its balance sheet, the buyback “reflects [the board’s] confidence in the continued growth of Sun’s business and an ongoing commitment to increase shareholder value”.

The latest buyback follows a $3bn scheme announced at the end of last year. Sun said there was still $36m of that scheme remaining. There is no expiration date on the current program.

Sun’s statement this morning gave no forecast for the year ahead, other than to say, “we remain confident in open source innovation as the accelerant to our growth strategy through increased adoption of our open source offerings”. In fact, the whole earnings statement only used the word server three times.

For the full year, sales came in at $13.9bn, virtually static on the previous year, with net income at $403m, down on last year’s $473m. ®

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