Sun Microsystems (JAVA) reported a disastrous Q1, with revenues and EPS coming in at $3.27 billion and $0.04, wildly missing consensus of $3.38 and $0.18. Sun blamed poor results on sagging consumer spending in the US resulting in reduced corporate capital expenditures:
We believe investors will view this earnings report very negatively due to both the size of the revenue miss (100mm) & shortfall in margins. JAVA cited a slowdown in the US in March (US – 10% y/y), with weakness in high-end servers & storage systems (tape included). Gross margin of 44.9% also missed our estimate by ~200 bps given lower product sales. The company lowered its 4Q08 revenue outlook & its FY09 operating margin target to 7%. Given prospects for lowere revenues, our 4Q08 EPS estimate adjusts to $0.84 (was $1.11). For FY09, our new EPS estimate is $1.15 (was $1.40), Now reflecting 2% y/y revenue growth to 14.21B (was $14.8B). Our price target for Sun of $14 (was $17) reflects 12x our FY09 estimate of $1.15. We believe Sun should trade at the low-end of the group given its revenue growth issues.
Lehman maintains its 2-Equal weight rating.