Longtime Sun skeptic has change of heart

Toni Sacconaghi, the Sanford C. Bernstein analyst who has for years been unimpressed with Sun Microsystems' attempts to improve its business, awarded the company a more optimistic business rating.

Sacconaghi raised his rating for Sun from "under-perform" to "market perform" in a report Tuesday. Granted, part of the reason was that Sun's stock has slipped well below $4 per share--it closed at $3.82 on Monday--but Sacconaghi also said the upgrade was because of his belief that "positive change is afoot at Sun."

The stock price slip now indicates the market has absorbed the fact that Sun's layoff of 4,000 to 5,000 employees is smaller than some expected, Sacconaghi said. And he believes new Chief Executive Jonathan Schwartz and returned Chief Financial Officer Mike Lehman will be able to "find the right formula of cost cuts and growth to generate notably improved operating margins over the next two-plus years." Sun is the only company on the S&P 500 list to have gross margins above 40 percent but operating margins less than 5 percent for all the last three years, he said.

The analyst also expected investors might come to a more favorable view of the company from two new factors: new AMD Opteron servers announced Tuesday, including a high-end eight-processor machine and a new blade server, and expected solid financial performance for the quarter ended June 30, the last of Sun's fiscal 2006.

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About the author

Stephen Shankland has been a reporter at CNET since 1998 and covers browsers, Web development, digital photography and new technology. In the past he has been CNET's beat reporter for Google, Yahoo, Linux, open-source software, servers and supercomputers. He has a soft spot in his heart for standards groups and I/O interfaces.

 

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