Sun Microsystems (SUNW) will be up today. Up big. After hours, the stock move as much as 11% on the plus side. That took them to $5.40, still well below their 52-week high.
Over the last six months, Sun’s shares are down over 25%.
Perhaps the reason the stock is not up more is that Sun’s revenue is not growing. At all. Revenue for the quarter was $3.835 billion. In the same quarter a year ago, the number was $3.828 billion. Net income was $329 million, reversing a loss a year ago of $301 million.
But, cutting costs can be done once or twice, and then it is done.
The market may not be bidding up Sun’s shares more because its still faces very hard competition in the server markets from Hewlett-Packard (HPQ), Dell (DELL), and IBM (IBM). Each is larger and has more resources.
Perhaps worse than that, the entire industry is facing virtualization software from companies including IPO candidate VMWare. Barron’s quotes one analyst as saying: "We expect the server installed base to barely grow beyond 2008." The new software should be particularly hard on Unix servers which are about a third of Sun’s revenue.
When it looked like Sun was coming out of the woods in mid 2006, the stock ran from $4.20 to $6.69 in February of this year. Since then, it has given most of that back.
Sun may rally, but it won’t last.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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