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Sun's Bottom Line Is Better Than Many Think
A Look at the Economics of Sun
December 8, 2008,
Volume 130, Issue 2

there is ample room to boost operating margins through an aggressive focus on costs and profitability

-- Toni Sacconaghi, Bernstein analyst

With the nation's economic downturn a confirmed recession, many industry observers are speculating about the viability of some of IT's mainstays. Sun has been a favorite of these speculators who propose an inevitable buyout for the company. However, in a perspective piece for, Paul Shread outlines in economic terms why Sun is doing better than many may think.

"The company's dramatic September-quarter loss was largely a non-cash write-down — the company's actual cash levels dropped $242 million in the quarter. Not pretty, but with about $2 billion more in cash and liquid investments than debt, the company could survive for a couple of years at its current cash burn rate," he writes.

Shread says the company may be moving toward a break-even point within a year's time with the recently announced layoffs, which potentially could save the company between $700 and $800 million annually.

"Sun's actual cash losses over the last four reported quarters — which include three quarters of recession — were just over $700 million," he explains. "Even if the company loses another $500 million or more before those savings kick in, it will still likely have a strong balance sheet when it returns to profitability."

He cites Bernstein analyst Toni Sacconaghi as advising long-term, multi-year investors to take a close look at Sun: "Sun is attractively valued at current levels ... based on our belief that there is ample room to boost operating margins through an aggressive focus on costs and profitability (akin to what HP has done over the last three years)."

More Information

Sun\'s Financial Failings Greatly Exaggerated

Sun\'s Investor Relations

You can hear how Sun management presented its response in November at the Sun Analyst Series (SAS) 2008 (Videos and Slides are available)

Read More ... [ more...]



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