Fool.com: Sun Shines at Sun Microsystems (Breakfast News) October 15, 1999

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BREAKFAST WITH THE FOOL

Friday, October 15, 1999

"When a thing is done, it's done. Don't look back. Look forward to your next objective."
-- George C. Marshall

Sun Shines at Sun Microsystems

By Richard McCaffery (TMF Gibson)

Growth across all lines of business, especially servers for the Internet and Internet service providers (ISPs), powered Sun Microsystems (Nasdaq: SUNW) to fiscal first quarter net income (excluding acquisition-related charges) of $274.8 million, up 39% from a year ago.

The hardware, software, and services company reported earnings of $0.33 per diluted share, up 32% from a year ago and two cents ahead of the First Call/Thomson mean estimate.

Never afraid to speak his mind, Scott McNealy, Sun's chief executive officer, said the company's growth came at the expense of competitors such as Hewlett-Packard (NYSE: HWP) and IBM (NYSE: IBM). Sales jumped 25% to $3.1 billion.

Sun's income statement and balance sheet look strong. Gross margins increased to 52% from 51% from the first quarter last year; operating margins jumped 4% to 12% and set a first quarter record; cash increased to $4.1 billion in part because of $1.5 billion in debt raised to support growth, yet Sun has 2.2 times more cash than long-term debt and other obligations; receivables are down slightly.

While inventory grew 32% this quarter, outpacing sales by a noticeable margin, inventories as a percentage of total sales actually dropped to 13% from 15% a year ago.

Sun's ".com everything" strategy seems to be working, and its profile as a company grows as the Web expands. According to a Salomon Smith Barney report, Sun expects to hit $20 billion in sales during fiscal 2002, which represents 71% growth over fiscal 1999 sales of $11.7 billion.

News to Go

Integrated circuit manufacturer Broadcom (Nasdaq: BRCM) reported a 426% increase in net income to $27.2 million, up from $5.2 million a year ago on strong sales of networking, set-top, and cable modem products. Diluted earnings per share (minus a one-time acquisition charge) soared to $0.26 from $0.05 a year ago. The gain includes a lower tax rate.

Office products retailer Office Depot (NYSE: ODP) reported a net loss of $1.1 million yesterday, and announced that John Macatee, president and chief operating officer, is leaving the company to pursue other interests.

Biopharmaceutical company Liposome (Nasdaq: LIPO) withdrew the application for its new breast cancer fighting drug Evacet from the Food and Drug Administration. The Oncologic Drugs Advisory Committee declined to recommend the drug at a meeting in September. Liposome plans to address the issues raised by the ODAC and resubmit a new application by year's end.

Engineered products manufacturer Leggett & Platt (NYSE: LEG) is replacing Cyprus Amax (NYSE: CYM) on the Standard & Poor's 500 Index. Cyprus is being acquired by copper mining concern Phelps Dodge (NYSE: PD).

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