"Sun has outperformed Wall Street's expectations in five of the past six quarters, and it last missed an earnings estimate in 2005. Let's see whether the streak can stretch further."
-- Me, two days ago

Well, it couldn't. Sun Microsystems (Nasdaq: JAVA) published a train wreck of a report last night, and the stock is down nearly 20% today.

The enterprise computing specialist lost $34 million, or $0.04 per share, on revenue of $3.3 billion. The sales slowdown was hardly a surprise, given Sun's recent history of decelerating revenue growth, but the net loss was a shocker. Sun made a profit of $0.07 per share a year ago, and seemed to have settled down in a predictable profit pattern.

Ponytailed CEO Jonathan Schwartz explained the underperformance with macroeconomic "challenges" in the United States. Sales actually improved over last year in 12 of the 16 sales regions that Sun tracks, including double-digit gains in biggies like Europe, South America, and India. But it wasn't enough to balance out a 10% domestic drop, as the hometown market is the biggest component in Sun's results.

Now, all is not lost. Sun still generated $1.24 billion in operating cash flow, up from a measly $394 million a year ago. Not that it's helping investors today, who are stuck with a split-adjusted share price digging into five-year lows.

So is this an overreaction of epic proportions by Mr. Market, akin to the fire sales we've seen recently on excellent businesses like VASCO Data Security (Nasdaq: VDSI), Finisar (Nasdaq: FNSR), and SiRF Technology Holdings (Nasdaq: SIRF)? I'm not at all convinced.

While a serial hit-and-miss innovator like Google (Nasdaq: GOOG) can get away with picking at various uncertain business models, Big G is doing that from the solid platform of dominating the online search and advertising markets. Sun can't even figure out whether it's a hardware business or a software company, and ends up lost inbetween, like an IBM (NYSE: IBM) wannabe that isn't that big, but plenty blue.

Pick a path, Jonathan. You're not strong enough to go for multiple markets -- that's a classic example of "diworsification."

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