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Sun on track to hit 2009 goals
2008-02-06
Sun Microsystems Inc. is on track to meet its financial targets for the 2008 and 2009 fiscal years, fueled by strong sales growth in emerging markets and a shift toward more expensive server and storage setups, the company's chief financial officer said Tuesday. The Santa Clara-based company's long-stated goal is a 10 percent operating profit margin in 2009, a target reiterated by CFO Mike Lehman at Sun's Analyst Summit 2008 in San Francisco. That figure excludes charges related to Sun's recently announced $1 billion acquisition of Swedish database software supplier MySQL AB. The company's stock, however, slipped Tuesday amid overall market malaise and lingering fear among Sun investors that sales aren't growing quickly enough. Sun shares fell 73 cents, or 4.2 percent, to $16.53. The stock has fallen steadily since Sun executed a 1-for-4 reverse stock split in November, which investors viewed as a sign of trouble, though Sun made the move to boost the image of its slumping shares. Operating margin is an important gauge of a company's performance and profitability. It measures how much money a company makes on each dollar of revenue before interest and taxes are deducted. The 10 percent milestone will be important for a company that only recently turned the corner on sustained profitability. Sun has posted five straight quarters of profits after enduring five unprofitable years and incurring more than $5 billion in losses after the dot-com meltdown. The momentum appears to be accelerating, as Sun's profits during the first half of its current fiscal year more than quadrupled over last year, rising to $349 million. "We have done exactly what we said we were going to do," Lehman said. But some investors worry the company's profit will stop growing as fast once the benefits of aggressive cost-cutting over the past two years wear off. Lehman also reiterated Sun's previously issued guidance of low- to mid-single-digit sales growth in the current fiscal year. Lehman also outlined some of the charges Sun expects to incur from the MySQL acquisition. The acquisition reflects a key part of Sun's turnaround strategy, which hinges on distributing free open-source software to generate more revenues from support services and drive higher server sales. Sun expects to take a charge of $20 million to $50 million for in-process research and development when the MySQL deal closes, which is expected to be in the current quarter, which is Sun's fiscal third quarter. In the fourth quarter, Sun expects a hit of $30 million to $50 million from stock-based compensation and other acquisition expenses.
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