Sun market cap slips below $3bn
Shareholder value getting further and further away.
SaaS data loss: The problem you didn’t know you had
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 - $800m a year in costs. ®
COMMENTS
Amen Joel! Sun is doing much better than this artcile purports
You hit more key points than the article did, I have to wonder if the author is shot selling Sun...?
Did you catch the part where sun made over 12 Billion in revenue last year? thats with a "B" They have the luxury of staying true to their employees while they can, when I bought their stock they were spending over 2 Billion in R&D alone, they can very easily become a "profitable company" but they are in it to win it so to speak. Also did anyone catch how large the growth of their storage sector was - google the reg article, the industry was up like 17%, and Sun was up way more than that. I am holding this stock (confidently) for the long haul. Sun has smart products and still has a great repuation amongst IT workers like myself who actually make purchasing decisions and reccomendations to many large companies. Don't let the fear mongering get to you - Sun still has a bright future. This is not the Titantic (look at M$ direction for that)
@ AC where do you get your facts? Why in the world would anyone consider a company that has a cash on hand equal to their market capitalization as bad?? This is a good thing, it means they have a lot of room to manuver, and plenty of cash to invest in them selves.
Sun is also still pursuing a 2nd round of stock buy backs, and that 2 bil I believe is already "spent" in the books, but the stocks have yet to be purchased. So has it hit the bottom, maybe not, but I don't see them sinking anytime at all, their IP portfolio is worth 3 bil alone on the open market. I beleive this is in fact what Warren Buffet would call a steal....wonder if BH has purchased recently?
Sun is about to be split up and sold
Check this out...someone is getting the details of the buyout. When a company has $3B of cash and its market cap is <$3B its time to raid the company for the top 10%, patent portfolio, and customer list.
"I don't think there's a buyer for the company as a whole today," said one of the bankers, who has discussed with some of the companies their interest in buying Sun.
"One business that Sun could sell fairly easily is StorageTek, a data storage business that it bought in 2005 for $4.1 billion. Bankers estimated it to be worth $750 million to $1 billion today."
"if Sun sold MySQL to a rival open-source company such as Red Hat Inc (RHT.N: Quote, Profile, Research, Stock Buzz), it is unlikely to fetch more than $300 million, the first banker said"
....Makes the $1B price awfully expensive
But then again....
"If you buy this company you are just going to buy baggage, the cost structure is through the roof. The product road map is nonexistent and customers are leaving in droves. When you see these three things, only a dumb company would think of buying Sun." ...without a pillage plan
Go Private? !! Go Staroffice!
How can they go private using the cash in the bank ? Once they spend that, then they will have nothing left to subsidize their quarterly losses.
Sun has been setting for years, unfortunately, and just relying on government contracts. They really should and could have made a much bigger impact in the business world with Staroffice. They should be wiping the floor clean with that pile of crap MS Office 2007 that no body really wants. They needed to invest more in the product firnedliness, compatibility with office, and of course marketing, but had they priced it more sensibly at a 50% discount to MS, then they would have now been laughing all the way to the bank
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