Thursday January 8, 03:46 PM
UPDATE 2-Goldman adds Sun Micro to Americas sell list
(Adds background, share movement)
Jan 8 (Reuters) - Goldman Sachs (NYSE: GS - news) added Sun Microsystems Inc to its Americas sell list and cut its price target on the stock, saying the lack of a diversified portfolio puts the company at a disadvantage versus competition.
Shares of the maker of high-end business computers fell as much as 10 percent in early morning trade on Nasdaq (NASDAQ: news) .
'Sun's heavy concentration of financial services, telecom, and manufacturing customers, and overweight dependence on a secularly declining segment (Unix servers) put it at a disadvantage during this downturn,' analyst David Bailey wrote in a note dated Jan. 7.
Bailey said the company's gross margin has begun to break down due to lower business volumes and more aggressive pricing, exposing Sun's bloated operating expense levels and causing it to return to losses.
One of the biggest concerns for analysts and investors about Sun, which competes with EMC Corp (NYSE: EMC - news) in the storage products market, has been its high operating expenses, which would almost match its revenue in the first quarter ended Sept. 28, 2008.
In November, Sun had said it would cut 5,000 to 6,000 jobs, or 15 to 18 percent of its workforce, as part of a broader restructuring plan undertaken in hopes of saving $700 million to $800 million annually.
'Even including the recent restructuring, we expect losses to continue,' said Bailey, who widened his 2009 loss estimate for Sun to 59 cents a share from his prior estimate of 26 cents, and cut his price target to $3 from $5.
Bailey said he sees a low double-digit revenue drop in 2009 for the company due to weakness in several of its key verticals and accelerating deterioration ofthe Unix server market.
As part of its efforts to counter slowing growth in some of its core business segments, Sun has been making investments in cloud computing.
The Santa Clara, California-based company, which competes with International Business Machines Corp, Hewlett-Packard Co and Dell Inc (NASDAQ: DELL - news) in the server computer systems space, on Wednesday said it bought Q-layer, a cloud computing company based in Belgium.
Cloud computing refers to a trend that taps into computing power in distant data centers and delivers applications over the Internet.
Shares of Sun, which gained about 46 percent of their value in the last one month, were trading down 32 cents at $4.77 Thursday morning on Nasdaq.
(Reporting by Bijoy Koyitty in Bangalore; Editing by Himani Sarkar, Amitha Rajan) Keywords: SUN/RESEARCH GOLDMANSACHS
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