Sun 4Q profit falls 73 pct, guidance hurts stock

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The Santa Clara, Calif.-based company also revealed plans Friday to expand its stock buyback program by $1 billion, a sign Sun believes its shares, which have fallen by 50 percent over the last nine months, are undervalued and poised to rebound.

Wall Street didn't share that optimism.

Sun's shares sank more than 12 percent on the company's worse-than-expected guidance, which indicated that the pressures that hurt Sun in the April-June period, its fiscal fourth quarter, are bleeding into the current quarter.

Sun, the world's fourth-largest server maker, said before the market opened that it expects a "slight" sales decline in the fiscal first quarter, which ends in September, and indicated it likely wouldn't turn a profit. Analysts surveyed by Thomson Financial were expecting flat sales and a profit of 11 cents per share in this quarter.

Goldman Sachs analysts David Bailey and Min Park said in a note to clients that Sun's results supply "another piece of evidence that the problems the company faces have no short-term fixes, and we would continue to avoid the shares."

The disappointing forecast represents the latest setback for a company that until recently was riding a sudden run of profitability: The latest quarter was Sun's sixth profitable quarter out of the last seven periods.

That marked a turnaround from the more than $5 billion in losses Sun racked up after the dot-com meltdown obliterated demand for many of its expensive servers. Sun turned the corner with intensive cost-cutting, such as by slashing 6,500 jobs over the past two years.

Investors still have had muted expectations. Analysts lowered their estimates in July when Sun announced early that its fourth-quarter sales and profit margins would be below the company's previous guidance.

Sun blamed weakness in the U.S. economy, which has caused some of its biggest customers to cut spending, and the sale of fewer higher-end servers, which carry better profit margins. Sun faces intense competition in that market from IBM Corp. and Hewlett-Packard Co.

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