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Analyst says "worst part" over for Sun

Shortly after the computing giant issued a profit warning for its second quarter, influential Goldman Sachs analyst Laura Conigliaro says the worst may be behind the company.

Just a week after Sun Microsystems issued a profit warning for its second quarter, influential Goldman Sachs analyst Laura Conigliaro said Wednesday the worst may be behind the company.

Shares were up 59 cents, or about 4 percent, to $17.61 by market close.

Conigliaro's latest research note is interesting mostly for its timing. Ahead of Sun's profit warning last week, Conigliaro cut her estimates. On Wednesday, her tone changed following a meeting with Sun management. Conigliaro is known on Wall Street for having strong contacts inside the companies she covers.

Sun is highlighting new products this week at its JavaOne trade show in San Francisco.

According to Conigliaro, many of the problems plaguing Sun are still there, but her checks with a large U.S. distributor indicate business has stabilized. Business in Europe remains soft, and the company is still facing tough competition from the likes of IBM and EMC. She didn't change her estimates for the company.

"After meeting with Sun yesterday, we came away concluding that, while these issues are not fully behind Sun, the worst part probably is," said Conigliaro in a research note. "We have heard that some companies are beginning to suggest that demand is showing some signs of upticking in the U.S. While Sun is not yet at that stage, we sense that it is pretty close to a bottom."

Conigliaro said Sun has recently gained "a few thousand" new enterprise accounts, which is a good sign. Nevertheless, Sun is likely to lose more customers, especially among struggling telecommunications companies.

Although Conigliaro said Sun's business prospects have bottomed, a return to growth isn't around the corner.

Other analysts, who have been trying to handicap Sun's future, agreed. A.G. Edwards analyst Shebly Seyrafi said Sun won't post sales growth until the first calendar quarter of 2002.

Last week, Sun said revenue for its fiscal fourth quarter ending June 30 will be in the range of $3.8 billion to $4 billion. Earnings, excluding charges, will be in the range of 2 cents to 4 cents a share, the company said. According to First Call, Sun had been expected to report a profit of 6 cents a share on revenue of $4.4 billion. The company will report its earnings July 19.