Feeds

Sun market cap slips below $3bn

Shareholder value getting further and further away.

The Essential Guide to IT Transformation

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. ®

The Essential Guide to IT Transformation

More from The Register

next story
Sysadmin Day 2014: Quick, there's still time to get the beers in
He walked over the broken glass, killed the thugs... and er... reconnected the cables*
Auntie remains MYSTIFIED by that weekend BBC iPlayer and website outage
Still doing 'forensics' on the caching layer – Beeb digi wonk
Microsoft says 'weird things' can happen during Windows Server 2003 migrations
Fix coming for bug that makes Kerberos croak when you run two domain controllers
Cisco says network virtualisation won't pay off everywhere
Another sign of strain in the Borg/VMware relationship?
VVOL update: Are any vendors NOT leaping into bed with VMware?
It's not yet been released but everyone thinks it's the dog's danglies
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
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.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.
Maximize storage efficiency across the enterprise
The HP StoreOnce backup solution offers highly flexible, centrally managed, and highly efficient data protection for any enterprise.