Sun expected to report substantial earnings growth
The company, making billions off server sales but facing vigorous competition, is expected to report earnings of 33 cents per share.
That's a healthy rung richer than the split-adjusted 24 cents per share the company reported for the same quarter last year, when Sun had earnings of $395 million on revenue of $3.5 billion. Three months ago, Sun reported record earnings of $436 million on revenue of $4 billion.
But Sun is facing increasingly vigorous competition, and the company's Unix server lead is being threatened by Hewlett-Packard and IBM, the No. 2 and 3 Unix server sellers.
"HP and IBM have narrowed if not eliminated Sun's product lead," Merrill Lynch analyst Steve Milunovich said in a recent research report. IBM shares surged today on profits of $1.9 billion with revenues of $21.7 billion for its most recent quarter.
IBM's top-end S80 Condor Unix server performs better than Sun's aging E10000 Starfire machine, and Big Blue is spending millions to take on Sun. HP, meanwhile, is set to unveil its 64-processor Superdome server in November.
By contrast, Sun's high-end E10000 replacement, using its new but delayed UltraSparc III Cheetah chip, isn't due until January, according to a source familiar with the company's schedule. Lower-end UltraSparc III machines are expected in October, and a CPU speed advance for the E10000 is expected later this month.
But Sun, which coined the marketing jingle "the network is the computer" years before the Internet was a big deal, has the advantage of being the top dog. Major software companies such as Oracle and SAP eagerly make sure their programs run on Sun machines, application service providers have been snapping up Sun's servers, and Microsoft's dominance on desktop computers no longer troubles computer analysts.
"Sun's partners are the cream of the crop," Goldman Sachs analyst Laura Conigliaro said in a report yesterday. "With demand for the company's products far greater than supply and continuing to accelerate, Sun has the option of cherry-picking key customers and partners."
Among those partners are Lucent, America Online, Vodafone, Sony, Nortel Networks, Motorola, Exodus, Alcatel, Nokia and Enron, she said. And Sun's strength with Internet companies means it "can afford to be more selective, a position that makes a decided difference at a time when many dot-com start-ups are looking for handouts in exchange for their server business."
Sun also faces challenges in the storage market, where EMC continues to thrive, with $2.15 billion revenue in its last quarter. Sun is hiring salespeople specifically to take on EMC, whose high-end storage devices often are attached to Sun servers.