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Sun Microsystems slides on outlook, downgrades

    Shares of Sun Microsystems (Nasdaq: SUNW) shed more than 13 percent Friday, a day after the company cut its outlook for 2001. Analysts lowered estimates; a few handed out downgrades.

    The Unix server specialist's stock lost 4.625 to 30.25 near midday.

    After yesterday's market close, the company met First Call's consensus figure of earnings of 16 cents for the second quarter, ended Dec. 31. Revenue increased 44 percent from $4.95 billion to $5.12 billion, the company reported.

    But CFO Mike Lehman also said that the company was "very slightly lowering revenue expectations" for the second half of the company's fiscal year. Revenue growth for the second half is now expected to be between 30 and 35 percent, down from Sun's previous guidance of "the mid-30s," he said.

    Analyst reaction to the news was mixed, with most maintaining their ratings on the stock while lowering estimates. However, Sun was downgraded at SG Cowen and Bernstein Securities.

    On the negative side, analyst Analyst Richard Chu at SG Cowen downgraded Sun to a "neutral" rating from a "buy".

    Similarly, Toni Sacconaghi at Bernstein Securities cut the stock from "outperform" to "market-perform".

    In a research note, Sacconaghi said the downgrade was due to projected deceleration in earnings and revenue growth, the company's exposure to the telecom sector relative to its major competitors, the difficulty in outgrowing the Unix market's current growth rate of 10 percent, and the company's current "appropriate" valuation".

    Other analysts took a more bullish view.

    Sun was reiterated "buy" by analyst Daniel Kunstler at J.P. Morgan.

    At Bear Stearns, analyst Andrew Neff cut estimates for fiscal 2001 and 2002 while maintaining an "attractive" rating.

    For Neff, the reduced numbers were due solely to macroeconomic concerns and the analyst said he remains "confident about the company's competitive position as a flagship vendor of the new technology infrastructure."

    While raising concerns over the stock's valuation, the analyst said he was satisfied with the company's execution and ability to identify and penetrate new markets.

    At A.G. Edwards & Sons, analyst Shebly Seyrafi called the quarter a "mixed bag" of results but maintained an "accumultate/aggressive" rating while lowering earnings estimates for fiscal 2001 and 2002.

    Amit Chopra at Credit Suisse First Boston maintained a "buy" rating but cut estimates. The stock's 12-month price target was also lowered to $55 from $70 on concerns over limited visibility for server spending over the near term.


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