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Sun: Q4 sales to drop by a third, sees deeper losses

No surprises there

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Server and software maker Sun Microsystems, whose shareholders are getting ready to vote on the $5.6bn takeover deal by Oracle this Thursday, got some food for thought as it announced sales were slammed in the fourth fiscal quarter and that it would be driven to a steep loss for the period.

Specifically, Sun said that it was forecasting that sales in the fourth quarter of fiscal 2009 ended June 30 would be in the range of $2.58bn to $2.68bn, down between 29.1 to 31.7 per cent over the $3.78bn in sales in fiscal 2008's fourth quarter. The fourth quarter in fiscal 2008 was no great shakes itself, with sales down and net earnings falling 73.3 percent to $88m, or about 11 cents per share. It was the beginning of the end for Sun, as we now know.

This fourth quarter of fiscal 2009 will be the end of the end, with Sun projecting a loss of between 24 cents and 34 cents per share, and non-GAAP losses of between 6 cents and 16 cents per share. Sun said in a statement that the non-GAAP numbers are excluding amortization of acquisition-related intangibles, stock-based compensation, restructuring and related impairment of long-lived assets, settlement income, net gain or loss on equity investments, and the tax effects of these adjustments.

Basically, it looks like Sun is writing off a whole bunch of things prior to the Oracle deal, but is still going to lose money. Provided that Sun has not bought a whole lot of its own shares in fiscal Q4, then Sun's net loss will be in the range of $179m to $253m.

In Sun's third quarter, when the company's top brass hid from Wall Street and investors and did not host a conference call to take questions about its business and the Oracle acquisition, Sun reported its sales fell by 20 per cent to $2.61bn, with hardware and software sales falling 24.2 per cent to $1.52bn: Sun had a net loss of $201m in fiscal Q3.

If the Oracle deal doesn't meet quick regulatory approval in the wake of the presumed acceptance of the Oracle offer on Thursday, Sun can expect an equally grim first quarter of fiscal 2010 ending in September. And even after Oracle takes over Sun, it is hard to imagine that the strategies and statements of the remaining Sun execs and the Oracle top brass will quickly turn around sales of Sparc and x64 servers, Solaris support, and whatever products get to live on inside Oracle.

Sun also said in its statement today that it would be dodging Wall Street and investors once again when it does report its Q4 and annual fiscal 2009 results. In fact, it would not even say when it planned to report its Q4 numbers, except to say that the Securities and Exchange Commission requires it to file its 10K annual report no later than August 31 and its Q4 numbers will be released on or before that date. ®

Bootnote

In a separate but related item, Oracle today filed a statement with the SEC in the wake of the preliminary results filing by Sun. It says it can still get the Sun deal to be accretive to earnings to the tune of about 15 cents per share, on a non-GAAP basis in the first full year in the wake of the deal.

Oracle added that it still believes Sun can contribute more than $1.5bn in operating earnings to Oracle on a non-GAAP basis in that first year, and that Sun's piece of operating profits can be increased to over $2bn in the second year.

That will be a pretty neat trick, considering that in the past four quarters (running from April 2008 through March 2009), Sun had an operating loss of $1.95bn, and in the similar four quarters a year earlier (from April 2007 through March 2008) it had an operating income of $634m.

Oracle either has to boost sales where Sun has been unable to, or slash costs where Sun has been unwilling to, in order to get to that $1.5bn in operating earnings. I think we all know which way this will be accomplished, right?

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