Sun's stock drops sharply after 73% drop in profit

A slowing economy has led computer server and software manufacturer Sun Microsystems to post a 73 percent drop in net income for its fourth fiscal quarter. So far in 2008, the company's stock has lost almost half of its value and most recently dropped 13 percent down to $9.24 per share.

Sun's share price hit a high point in October at $25.04, but has suffered a sharp decline since then. It bottomed out at $8.63 in the middle of last month, but had climbed to nearly $11 before Friday's earnings call.

The company's Q4 revenues were $3.78 billion, slightly lower than its $3.84 billion in revenue at the same time last year. The full fiscal year's revenues increased slightly from $13.87 billion one year ago to $13.88 billion this fiscal year.

The major fourth quarter profits plunge still beat Wall Street expectations, but Sun's immediate future could be turbulent due to the company's reliance on the US economy. Around 40 percent of Sun revenue is tied directly to companies based in the United States, who are cutting back spending due.

Sun CEO Jonathan Schwartz warned that former multi-million dollar deals are now signing for numbers as low as $50,000. Sun also decided to expand its stock buyback program, adding another $1 billion to the $3 billion shares it has already purchased.

The fourth quarter, which ran from April to June, was Sun's sixth profitable quarter out of the past eight quarters. But analysts were quick to point out that it was profitable largely due to the company's cost-cutting efforts to help save money.

The Santa Clara, Calif.-based company is seeing success, however, with its Niagara server line and with its Open Storage products, which will receive a stronger emphasis into the future.

Sun has had an up and down struggle with its financial forecasts over the past few years, with a change in command in 2004 seeing Scott McNealy ousted in favor of Schwartz. The company was forced over the past two years to launch several waves of job cuts to help lower costs, with around 6,500 employees losing their jobs. Almost 3,700 jobs were terminated immediately after Schwartz took over four years ago.

Sun Chief Financial Officer Michael Lehman said the company will continue to eliminate jobs until it has about 33,000 workers worldwide.