Sun Micro (JAVA) In The Shadows: Selected Stocks Under $10

Share in Sun Microsystems (JAVA) have been drifting. Their performance for the last three months looks like larger proxies for big tech, Hewlett Packard (HPQ), Dell (DELL), and IBM (IBM). All four stocks are up between 5% and 10% for the period. But, so is the Nasdaq for that matter.

Wall St. is waiting for November 5 when Sun puts out earnings, but traders are not showing any conviction about how things might turn out.

The things Sun could do to get shares up, beyond posting good results, it has done. The company is buying back shares. It changed its ticker to the more familiar JAVA from SUNW. It introduced a new flagship line of servers based on its Niagara 2 chips.

The market seems to think that the turnaround at the company has a chance of driving several consecutive quarters of positive earnings, something that has not happened in years. The most recent research call on the company, from Wachovia, was to initiate coverage at "Market Perform". An indifferent opinion that matches the company’s recent results.

Expectations for the next quarter are painfully modest. Revenue is expected to rise a little over 2% to $3.27 billion. EPS is forecast to come in at $.03 compared to a loss of $.01 last year. Cost cutting will make up most of the improvement.

So, what does Sun have to do to get off the schnied? The company could probably miss EPS by a penny. That will not matter as much to investors as some sign that revenue is not going to continue to grow in the low single digits.

The current period is supposed to be one in which tech companies have their best shot at rapid earnings improvement in as many as five or six years. If Sun can’t demonstrate that some of that has rubbed off on it, the rest of 2007 is going to be unpleasant for JAVA shareholders.

Douglas A. McIntyre

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