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Sun shares sink on muted 2001 outlook

Shares of the company shed more than 12 percent, a day after it cut its outlook for 2001. Analysts lower estimates, and a few hand out downgrades.

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Shares of Sun Microsystems shed more than 11 percent Friday, a day after the company cut its outlook for 2001. Analysts lowered estimates, and a few handed out downgrades.

The server specialist's stock closed regular trading down $4 to $30.88.

After yesterday's market close, the company reported earnings that met First Call's consensus estimate of 16 cents a share 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 said 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 percent 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. But Sun was downgraded at SG Cowen and Bernstein Securities.

On the negative side, 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 Chase.

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. The analyst said he remains "confident about the company's competitive position as a flagship vendor of the new technology infrastructure." While raising concerns about 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. In addition, the stock's 12-month price target was lowered to $55 from $70 on concerns about limited visibility for server spending in the near term.