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Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, July 25, 2006

The Sun Didn't Set on Sun Micro

Sun Microsystems (SUNW) said it wanted to BUY REVENUES last year. Its acquisition of StorageTek helped it post revenues of $3.828 Billion for this quarter, up from the same quarter last year revenues of $2.974 Billion. Sun was expected to post revenues of $3.63 Billion on the last available look.

The company also reported a net loss of $0.09 EPS on a GAAP basis, but look at what this included as far as charges:

$86 million in acquisition costs;

$63 million stock option related expenses;

$228 million in restructuring;

$8 million in related tax effects to restructuring;

$70 million in impairment of intangibles (from acquisitions);

$54 million in settlement income;

$4 million loss on equity investments;

$58 million tax charge;

$14 million from repatriating foreign earnings.

These items accounted for -$0.13 off of EPS according to the company. If you trust what the company is saying, this means that the company arguably swung to a profit. It really looks like all of the headlines stating "SUN SWINGS BACK TO LOSS" may be the reasons that the shares are only up 1%.

The company generated $410 million cash for the quarter, and it said cash and equivalents ended the quarter at $4.848 billion.

The company didn't offer any formal guidance other than saying they have started the year out with over $1 Billion in backlog. The street is probably waiting to see what the company says for any guidance before endorsing numbers that are being evaluated differently from source to source. These numbers actually look ok as long as you don't have to use the valuation multiple benchmark since this is SUNW, but others are reporting this on a GAAP basis. Until SUNW gets all restructuring and non-operating expenses behind operations it may be hard to use GAAP earnings on this company. Shares closed up 1.7% in regular trading at $4.09, and shares were at $4.12 in after-hours trading.

Jon C. Ogg
July 25, 2006
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