Sun's Woes Continue

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Yesterday, Sun Microsystems (Nasdaq: SUNW) revised its fourth-quarter results, taking a $1.05 billion charge to increase an allowance for net deferred tax assets. For the period ended June 30, the networking giant will show a loss of $0.32 per share, rather than a $12 million profit.

While this is a non-cash charge, the move signals a weaker outlook. The deferred tax assets are used to offset future taxable income. So, by taking the charge in the fourth quarter, Sun suggests that it is not confident in a high level of future profitability -- a possible indictment on the bullish thesis for increased technology spending.

Accordingly, Sun now expects a fiscal 2004 first quarter GAAP loss of $0.07 to $0.10 per share, compared to the analyst estimate of a $0.02 loss. Included is a tax provision worth $34 million, or about a penny per share.

Sun's equipment running its Unix operating system has suffered from increasing competition on all fronts. Newer competitors such as Dell Computer (Nasdaq: DELL) are using cheaper Intel (Nasdaq: INTC) chips and Microsoft (Nasdaq: MSFT) software to pick Sun off the low end. IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ), which offer consulting services, are attacking the high-end market.

Squeezed at both ends, Sun's competitive position has dramatically decayed in recent years. Watch its competitors for signals -- if these guys show top-line improvement and better margins in their operating system divisions, it may well be that Sun just blinked at the wrong time.

Shares of Sun Microsystems are down 15% to $3.29 midday.

Jeff Hwang can be reached at JHwang@fool.com