Don't you think Sun would love a do-over on StorageTek?

The company warns of a wider loss on lower revenue. Final numbers are due at the end of the month. Scott McNealy must be glad he's out golfing.

In June 2005, long before most people ever heard of subprime, LIBOR, or credit default swaps, Sun Microsystems thought it was a grand idea to buy StorageTek for the princely sum of $4.1 billion. At the time, the thinking at Sun was to become more of a one-stop shop for its corporate clientele. On paper, at least, it sounded like a plausible idea.

But that was a veritable eternity ago. With the market's sudden meltdown in the last month, corporate spending--at least on Sun's products and service--has been hit especially hard. So it was that Sun warned this afternoon of a wider loss on lower revenue. The company said that it's going to lose 25 cents to 35 cents a share.

That figure includes a $60 million restructuring charge but not the potential goodwill impairment. Sales are expected to come in between $2.95 billion to $3.05 billion, as compared to $3.21 billion for the first quarter of fiscal 2008.

What really stands out in the warning is the paragraph devoted to a discussion of what largely was the StorageTek business. To wit:

Based on a combination of factors, including the current economic environment, Sun's operating results, and a sustained decline in Sun's market valuation, the company has concluded that it is likely that the fair value of one or more of its reporting units has been reduced below its carrying value. As a result, Sun is currently conducting an interim goodwill impairment analysis to determine the required amount of the non-cash impairment charge, if any. As of September 28, 2008, prior to the impact of this potential non-cash impairment charge, Sun's total goodwill balance was $3.2 billion of which $1.8 billion relates to reporting units that may be impaired.

Sun also paid about $1 billion to buy MySQL in January. A spokeswoman said Sun will publish final numbers on October 30, when the company holds its quarterly earnings call.

At the time of the StorageTek acquisition, a Forrester analyst by the name of Frank Gillett had this to say:

"Buying a company that is primarily tape technology today doesn't look like an exciting play for a forward-thinking company like Sun....It appears like they have some strategic stuff in mind in the long run, but I don't think that this acquisition is being justified on yet-to-be-announced technology. In the short run (the logic) is an open question."

Pretty prescient.

 

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