“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.