Sun's (SUNW) Fall: A New 52-Week Low

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Sun Microsystems (SUNW) sold off today and hit a 52-week low at $4.50. Its 52-week high is $6.78.

The company put out mediocre numbers on July 30, so this is a bit of a delayed reaction. The company’s revenue was flat for the quarter, at about $3.5 billion. The company had an operating profit of $325 million compared with a loss of $335 million the year before. Most of the improvement was due to lay-offs and other cost controls.

Sun said that it plans to cut more expense in the quarters ahead. But, that leaves the mixed message of whether the company wants to downsize more due to lack of revenue growth.

In May, Sun said it would buy back $3 billion worth of shares, which is over 15% of the outstanding. The move clearly has not pushed up the price.

There is no single issue keeping the stock price down. One school of thought is that the company cannot grow because it faces too much competition from companies like IBM (IBM) and Hewlett-Packard (HPQ).  As Morningstar points out, Sun does not have the "depth and breadth" of produccts to compete across a wide range of markets. Another theory is that Sun’s embracing of open source software is not likely to increase its customer base.

Whatever the reason, it looks like Sun will be stuck at the bottom of its trading range for some time

Douglas A. McIntyre