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Sun Begins A Slow Rise

By: David Utter

The company suffered a net loss of 13 cents per share due to a number of factors in Sun Microsystems' fourth quarter of 2006, but revenue increased and one analyst firm raised its target price while reiterating a "buy" rating for the stock.

Sun Begins A Slow RiseSun Microsystems (SUNW) ended its fiscal year in the middle of a very hot July. It may be the end of a long winter of discontent for shareholders too.

By the numbers, revenues moved up 29 percent year over year to $3.828 billion from 2005. Sun incurred a net loss on the income side of $301 million, or 9 cents per share. A series of factors contributed to the unlucky 13-cent dive:

GAAP net loss for the fourth quarter of fiscal 2006 included:
$86 million principally related to intangible asset amortization associated with recent acquisitions,
$63 million of stock-based compensation charges relating to the adoption of SFAS 123R,
$228 million of restructuring charges and an $8 million benefit for related tax effects,
$70 million in impairment of acquisition-related intangible assets,
$54 million in settlement income,
and a $4 million loss on equity investments.
In addition, we incurred a $58 million tax charge and $14 million reduction in other income due to a repatriation of foreign earnings.

The company touted several customer wins for the period in both the financial services and the telecommunications sector. The Chicago-based all-electronic National Stock Exchange (NSX) and Bear Stearns both made hardware and software deals with Sun, while several international telcos like Bell Canada and Guangdong Telecom (China) agreed to similar purchases.

Since closing at 3.83 on Friday, Sun has been moving upwards in the market through this week. Despite the net loss, investors may be taking a longer term view of the company. Analyst firm UBS raised its target from 6 to 6.25 for the company while reiterating its "buy" rating.

Among the factors driving Sun has been the adoption of Solaris 10. Last year, Sun made the operating system, long a for-pay product, freely available to the open source community a year ago at OpenSolaris. Sun has capitalized on this adoption with sales from its Sun Fire server line, and storage and software services.


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