S&P downgrades Sun to ‘junk’ status

“In a setback to Sun Microsystems’ turnaround plans, Standard & Poor’s on Friday downgraded the Santa Clara computer server company’s credit rating to ‘junk’ status,” Dan Lee reports for The Mercury News. “In making the downgrade, the credit-rating agency said it did not expect Sun’s profits to return to ‘historic levels in the near-to-intermediate term’ because of fierce competition and Sun’s high investment in research and development. Sun’s research and development costs represent 16 percent of total sales, up from 10 percent in 2000.”

Lee reports, “But the rating cut may do more to hurt Sun in the eyes of investors than to actually hamper the company’s operations. Sun has lagged rivals such as Dell and IBM, but analysts said the company is not likely to need to borrow more money and is finally showing signs of a rebound. The company has posted losses in nine of the past 11 quarters and has cut 7,000 jobs over the past two years.”

“The rating drop of two levels, from ‘BBB’ to ‘BB+,” means that Sun’s rating is considered below investment grade,” Lee reports.

Full article here.

16 Comments

  1. They need to put Dell on the “junk status” list. Though this is some financial review and not a technical view, the shoe would be on the other foot if you compared Dell with Sun. Dell builds junk, while Sun builds greatness!

  2. Surely, the time has now come for Scott McNealey to quit his ‘Don Quixote’ fake war with Microsoft and concentrate on saving his business in the marketplaces where Sun can deliver real value.

    Even better, is it now not time for Apple and Sun to join forces against a common enemy and share the costs of being the industry’s R&D function whilst presenting a common set of technologies to the market.

    My view is that Sun exists merely to sell Sparc and that Sparc cannot survive in the long-term against processors that are produced whilst leveraging larger markets and economies of scale. This opinion contains no comment on the technical strengths or otherwise, but is merely an observation that Sparc cannot survive against AMD, Intel, and IBM when all of those companies are producing 64-bit silicon for more expansive markets which are all at the bottom of their adoption curves.

    Sun and Apple should join forces and leverage their common commitment to the BSD shell, whilst Sun should cut it’s losses and revise Solaris to wrap itself around the Mach micro-kernel. If Sun then became a member of the PowerPC consortium, we would return to having three committed members (as opposed to Apple, IBM and the company I don’t talk about).

    Even better, Apple and Sun could share a common design for server hardware with hyperthreading allowing Solaris and Mac OS X to co-exist concurrently with each benefiting from the applications and developer portfolio of the other. Also PowerPC would become the reference platform for Java and StarOffice.

    This co-operation could pave the way for a merger that makes genuine sense, unlike the perennial Apple/Sony rumours which would require considerable cultural and commercial engineering to crystallise as a viable route for development.

  3. The enemy of my enemy is my friend.
    A healthy Sun Micro is good for everyone.

    Since when is R & D a bad thing? If Apple had not spent the $400+ Million every year on R & D since the return of Steve Jobs Apple would not be here now. When Apple was worth about $2 Billion and had debts of over $1 Billion they committed a much larger percentage of their market cap than Sun is currently spending to R & D and it has all paid off. Almost $% Billion in the bank and NO DEBT. If Apple had taken on the risk:

    1) No OS X
    2) No G5
    3) No iTunes, iPhoto, iMovie, iDVD,Garage Band
    4) No iPod
    5) No iTunes Music Store

    We would all be using very old Macs, LINUX or (gasp) XP.
    The only question is:”How and what are they spending the R & D money on?” During the Sculley/Amelio/Spindler era Apple poured bucketloads of money on projects that never saw the light of day. The chased rabbit holes and blew a massive technological lead over Microsoft. It took Microsoft until Windows 95-98 to approach what Apple had in 1984-1985.

  4. Keep in mind that IBM has been talking with Sun about opening Java – if Java becomes something that is open and community-owned, Sun might not need to exist for it to be sustained and healthy. (So let’s see… if IBM puts the smackdown on SCO, Sun becomes irrelevant, HP has pretty much already chosen to make itself irrelevant in the UNIX field by hitching its wagon to Itanium’s falling star… who, exactly, is going to be left to challenge IBM in the UNIX field? Plus, IBM is big on Linux… sounds like IBM could actually wind up “winning” — and possibly even for the right reasons.)

  5. The term “junk” used in the article is not attributed. Traditionally junk is used to describe stocks that have sunk below $1. Sunw is up 100% since October, as is aapl. The article’s suppositions might turn out to be correct, but at this point reading tea leaves might be more efficient.

  6. it would be a shame for sun to go the way of the dodo bird.

    it was once a cutting edge company, and still can be, given time, but peecee users want the cheapest hardware they can get…

    i guess that’s why Dell will always be on top. garbage in, garbage out.

  7. Re:Dell
    Wal-Mart is the largest retailer of clothes in the US but I don’t think anybody that doesn’t have to buy their crap actually would. Same with Dull Computer.

  8. i guess that’s why Dell will always be on top

    Nope, always is definitely over-stating it. This “make everything cheap and f*ck the R&D” mentality can’t go on forever. There is ALWAYS someone who comes along and tips the balance. Just look at the history of the automotive industry, or of IBM. Dell can do one thing only, and that’s cheap assembly. If a new development comes along that they can’t just assemble into a box they’re screwed. They don’t have the means to react. All they can do in that case is rebrand other peoples tech, but that isn’t a way to make money.

    urely, the time has now come for Scott McNealey to quit his ‘Don Quixote’ fake war with Microsoft and concentrate on saving his business in the marketplaces where Sun can deliver real value.

    That’s assuming Sun isn’t doing that already. I think you might be mistaken there. Sun’s in a bit of the same spot Apple was in when Jobs returned. People have been conned into buying cheap junk, and Sun missed the boat on the less specialised systems. They still have a lot of value, it’s just a matter of whether they can get people to appreciate it. McNealey’s war against MS is actually not one of Sun’s problems. Sun needs to stop the market from being assimilated and locked down by Bill and Monkeyboy. That’s why they’re now using the open source movement for various things.

    As for teaming up with Apple, forget it. IBM is Sun’s main competitor in the Big Iron field, and IBM seem to hate Sun much more than MS. Apple won’t want to compete with IBM while relying on their chips. It’s a shame really, as an IBM-Apple-Sun alliance would be a great counterweight to M$ with plenty of clout to get open standards established.

  9. In other “another PC company is dying” story (didn’t we have enough Apple is dying stories?) Gateway is going to close ALL of its Country stores either this Monday or next Monday.

    Temporary staff is going to come in and the employees booted out while they close up shop. No severance pay or anything.

    It just so happens the deal to buy eMachines (by Gateway) is finalized this Monday, this will allow Gateway access to all of Best Buy outlets where eMachines are now sold.

    Also tech support is going overseas to India, brush up on your broken English eMachine and Gateway users. Ha ha haa.

    PC companies come and go, but Apple remains!

    Crunch proteins for fun and science

  10. Bo’ster:

    From my POV, Sun made mistakes on two fronts; firstly, when it tried to convince a sceptical business audience that using SparcStations was a viable alternative to cheap, commoditised personal computers (more expensive than Macintosh, with a smaller developer portfolio) and secondly, when it got involved in the whole Java as a platform nonsense.

    Sun has a value delivering true workstations, true enterprise servers and storage and in the whole ‘web appliance’ market. This stands apart from the work that they do on Java and the protection that they have afforded StarOffice.

    McNealey’s need to berate Bill and Dancing MonkeyBoy in every interview creates an impression in the mind that he’s less obsessed with creating great product than beating MS in the marketplace. This is wholly pointless and self-defeating; people have a mistrust of what they see as whining, especially when the whining effectively says ‘MS products are stupid and people who buy them are stupid’.

    Scott needs to learn from the ‘new’ Steve Jobs: tolerance and co-existence publicly allows consumers and media to focus on more positive news – like iTMS and iPod – whilst the private agenda is still to find opportunities for innovation that disadvantage MS.

    I’m not sure I agree with your opinion re: IBM vs. Sun: IBM appears to operate as a loose federation of divisions, so there’s no reason to suppose that IBM’s semiconductor arm particularly cares that there are other divisions of IBM who are fighting a commercial war with Sun for fully-packaged systems.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.