Sun's run fails to impress

Sun Microsystems (SUNW) shares led the FCW Tech Index for the two-week period ending Jan. 17, posting a 6.25 percent increase to $4.59.

The uptick, however, failed to impress stock analysts who question the server, storage and software company’s growth prospects. The company has struggled to boost U.S. revenue in recent quarters, citing intense competition in the server market.

Based on the past quarters’ results “we are skeptical of the company’s ability to grow the business in a meaningful way in the absence of continued new product introductions,” wrote Keith Bachman, an analyst with Bank of America Securities, in a Jan. 20 research brief.

Elsewhere, Bernstein Research earlier this month downgraded Sun’s stock to underperform.

columnist top Sun’s revenue woes stem, in part, from declining intensity in the government space, a traditional stronghold for the company. “In the government sector, we continue to experience intense competition and reduced spending in certain areas which have traditionally been sources of relative competitive strength,” wrote Sun officials in a November filing with the Securities and Exchange Commission.

A Credit Suisse First Boston report also cited Sun’s “ongoing mix shift to low-end servers” as a factor in the company’s revenue challenges. The company in September introduced a line of servers based on AMD’s Opteron processors, with prices starting at $745.

“Opteron based servers are gaining incremental traction, though we don’t believe that they will be significant enough to make a dent in potential revenue challenges,” Bachman wrote.

GTSI and World Wide Technology are among the government resellers providing Sun servers based on Opteron.

Recently debuted Sun servers based on the UltraSparc T1 microprocessor, namely the SunFire T1000 and T2000, may help stimulate sales, Bachman wrote. But he said he doesn’t believe “either will have much of an impact in assuaging our chief concerns regarding revenue growth and margins.”

Meanwhile, Hewlett-Packard was runner-up to Sun in the FCW Tech Index. The company’s shares increased 4.73 percent to $31.67, as analysts cite improved execution and growth prospects.


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