Saturday, March 06, 2004
A setting Sun?
Another of the poster children of the Internet boom seems on its way out. This one, though, I did not expect at all. The company that defined the computer in terms of the network, Sun Microsystems, probably needs a miracle to stay in business given that Solaris is probably fighting a losing a battle against Linux (forcing Sun to adopt Linux as well) and turning in bad results (11 consecutive quarters of declining revenue) even as the industry seems to be recovering from the crash. And now, Standard & Poors has cut Sun's corporate credit rating to junk status.
"The downgrade reflects weak and inconsistent profitability, and the expectation that Sun will be challenged to profitably expand its market presence," said Martha Toll-Reed, Standard & Poor's credit analyst. She said she did not expect the company's profitability to return to historical levels in the near-to-immediate future.
Friday's move by the credit agency is a big blow to Sun's recent efforts to turn its fortunes around. During the second quarter of fiscal 2004, the company's revenues topped analysts' projections, rising 13.9 percent over the first quarter, the highest growth rate from a first quarter to a second since 1998. Sun's stock closed Thursday at $5.16 after starting off the year at $4.49.
Ms. Toll-Reed said the company continued to face enormous hurdles in the server market where it competes with I.B.M. and Hewlett-Packard, as well as with Dell Computer at the low end of the market. Dell has in recent years moved aggressively into that market, selling less-expensive servers based on industry standard technologies like Linux and Microsoft Windows. By contrast, Sun continues to rely on selling more-expensive servers, based on its own proprietary version of Unix.
"The downgrade reflects weak and inconsistent profitability, and the expectation that Sun will be challenged to profitably expand its market presence," said Martha Toll-Reed, Standard & Poor's credit analyst. She said she did not expect the company's profitability to return to historical levels in the near-to-immediate future.
Friday's move by the credit agency is a big blow to Sun's recent efforts to turn its fortunes around. During the second quarter of fiscal 2004, the company's revenues topped analysts' projections, rising 13.9 percent over the first quarter, the highest growth rate from a first quarter to a second since 1998. Sun's stock closed Thursday at $5.16 after starting off the year at $4.49.
Ms. Toll-Reed said the company continued to face enormous hurdles in the server market where it competes with I.B.M. and Hewlett-Packard, as well as with Dell Computer at the low end of the market. Dell has in recent years moved aggressively into that market, selling less-expensive servers based on industry standard technologies like Linux and Microsoft Windows. By contrast, Sun continues to rely on selling more-expensive servers, based on its own proprietary version of Unix.
