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. 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.

  2. 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.

  3. 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.

  4. 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

  5. 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.

  6. IBM’s operating divisions are going to sell/market/use whatever works, has a market, and is an advantage to IBM. No sophomoric loyalty here, just hard-nosed business sense. They are the oldest in the business and have been through all of the cycles before.

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