Feeds

Sun market cap slips below $3bn

Shareholder value getting further and further away.

Intelligent flash storage arrays

Sun's market capitalisation sank below $3bn yesterday as Forbes reported via Reuters that Sun is under pressure to sell itself or some of its assets to get out of the sinking sands it seems inexorably drawn to.

In July the market cap went below $8bn as Sun became a mid-cap level company. The term means its market capitalisation is $10bn-$2bn ($10bn-$1bn according to a different mid-cap definition).

We can contemplate Sun's market cap falling further and sinking under $2bn. For example, if the share price falls to $2.70 then the company would then be worth less than $2bn.

What is to stop that happening?

It has just reported a quarterly loss of $1.7bn for its first fiscal 2009 quarter. A new line of open storage arrays was announced on Monday and the initial reaction of the stock market was a further share price fall to yesterday's Nasdaq close of $4.03.

According to the Forbes article, analysts are expecting Sun to lose $1.35bn on revenues of $12.8bn for its fiscal 2009 year, ending June 30 2009. They don't expect open storage revenues to rescue the company. They don't expect the huge number of developers who have downloaded copies of Sun's open source software to stimulate enough follow-on hardware and service sales to reduce that $1.5bn loss number.

Sun has already laid off 1,000 people in a 1,500-2,000 job loss scheme to cut costs, as its headcount approaches 28,000.

The company's reluctance to cut jobs is commendable, especially if you are a Sun employee, but analysts don't agree with it. They are saying the cuts are not enough. At a simplistic level the company needs to cut over a billion dollars from its costs - nearly $1.5bn in fact - if it is to break even this fiscal year. In terms of headcount that isn't a cut, it's a series of major amputations. Divide the average annual employee cost into $1.5bn and you come up with numbers that could make you feel sick. (Assume a $100,000/year employee cost and that's 15,000 who have to go.)

But it's surely unavoidable - more cuts are going to have to come or major Sun assets sold or both. Sun has $3bn in cash, but that won't last for ever and it's being used up.

This is a potential Titanic disaster in clear daylight. The iceberg can be seen. The ship is sailing straight towards it. The captain and officers are saying it's alright, our plan will save the ship. The iceberg gets closer. The captain and officers still say our plan will save the ship. The main shareholders stay on board; they don't take to the lifeboats; they don't replace the captain and officers.

The iceberg gets closer. Do the main shareholders, the captain and the officers know something we don't? Or do we know something they don't? Wait for next week's gripping episode in this long-running IT soap saga.

Update

14th November: Sun is going to lay off up to 6,000 people and save $700m - $800m a year in costs. ®

Choosing a cloud hosting partner with confidence

More from The Register

next story
Cray-cray Met Office spaffs £97m on VERY AVERAGE HPC box
Only 250th most powerful in the world? Bring back Michael Fish
Just don't blame Bono! Apple iTunes music sales PLUMMET
Cupertino revenue hit by cheapo downloads, says report
The DRUGSTORES DON'T WORK, CVS makes IT WORSE ... for Apple Pay
Goog Wallet apparently also spurned in NFC lockdown
Microsoft brings the CLOUD that GOES ON FOREVER
Sky's the limit with unrestricted space in the cloud
'ANYTHING BUT STABLE' Netflix suffers BIG Europe-wide outage
Friday night LIVE? Nope. The only thing streaming are tears down my face
Google roolz! Nest buys Revolv, KILLS new sales of home hub
Take my temperature, I'm feeling a little bit dizzy
Cisco and friends chase WiFi's searing speeds with new cable standard
Cat 5e and Cat 6 are bottlenecks for WLAN access points
prev story

Whitepapers

Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.
Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Saudi Petroleum chooses Tegile storage solution
A storage solution that addresses company growth and performance for business-critical applications of caseware archive and search along with other key operational systems.
Getting ahead of the compliance curve
Learn about new services that make it easy to discover and manage certificates across the enterprise and how to get ahead of the compliance curve.