Sun Microsystems Inc never gets a very good press on Wall Street, and despite surprising the market with a much better than expected fourth quarter performance (CI No 2,222) it still faces enough obstacles to make many analysts wary about recommending the stock, Reuter reports. Competitive pressures and slower sales growth in Europe and Japan have combined with the usual concern about Sun’s inconsistent execution plan, analysts say. The international economic climate is still uncertain and the company has a difficult road ahead, said Phil Rueppel at Alex Brown & Sons. He keeps his neutral rating and low 1994 estimate of $2.15 per share. Sun earned $1.49 per share in fiscal 1993.
Efficiencies
Rueppel said the fourth quarter result was not so much an anomaly as an indication that Sun is currently in the heart of a new product cycle, and volumes and efficiencies benefit accordingly. Steve Smith at PaineWebber, a bear with an unattractive rating, cited competition against Sun’s Sparc chips from Intel Corp’s Pentium as well as from the workstations from Hewlett-Packard Co and Digital Equipment Corp. But Kevin McCarthy at Mabon Securities believed competitive pressures have eased, and may not pick up again until early 1994. Vendors are picking up market share now without infringing on each other too much, but they may start to butt heads then, he said. Jim Reynolds at Wedbush Morgan Securities said Sun had the internal structures in place to cope with competitive pressures, and that any warring would not get as lethal as in the personal computer market. The only analyst with a buy rating, out of six surveyed by Reuters, was Laura Conigliaro at Prudential Securities. She holds her 1994 estimate of $2.60 per share and says the results indicate that when things are going well, you can produce unusually good results especially if the company is as in control as Sun seems to be. But orders were lower than she expected, and if any firm was going to hit problems it would be Sun, she said.
