Why isn't Sun Microsystems (NASDAQ:SUNW) doing any better? The company closed out its fiscal second quarter with a profit of $19 million -- or half a penny when you divide it by the company's gargantuan 3.4 billion shares outstanding -- as revenues dipped by 2% to $2.8 billion.
You can definitely find some good news in the company's report. Gross margins inched higher. Meager as the Sun's profit was, it reversed a loss a year earlier. Yet after watching the company list a litany of one-time charges that would have barely nudged up the earnings per share sum to three-quarters of a copper cent, just about everything that's wrong can be traced to two lines in its income statement.
| Sun's Top Producer Award | Q2 '05 |
|---|---|
| Operating income | $16 million |
| Interest income, net | $33 million |
That's right. As hard as the company toiled away during the quarter -- the blood, the sweat, and the tears that fueled the server specialist -- it was shown up by being half as productive as the Sun's collection of idle cash and income-producing securities.
Sun points to volume growth in its server lines. Sure, companies are starting to spend more freely again. Yet product revenues still fell during the period. Sun points to rave reviews for its new Linux-friendly operating system, yet Solaris 10 is a free platform that the company allegedly spent half a billion bucks to bring to market.
Enter the company's ticker symbol in our site's search box and you are likely to see a Yahoo! (NASDAQ:YHOO) Overture ad sponsored by Sharebuilder.com. "Buy Sunw Stock for $4" it reads. While that's a standard ad -- the $4 refers to the discount broker's commission schedule -- in Sun's case, it's pretty accurate as that's essentially where the stock has been trading for the past two and a half years.
Maybe a dividend policy is in order. I hate to call out the company's most productive member, but with $7.5 billion in the bank -- nearly half of its market cap -- maybe investors can wait out the top-line stagnancy in a better mood if they had some quarterly paychecks to cash. It's what Microsoft (NASDAQ:MSFT) did. It couldn't hurt, right? At the very least it'll peel away some protective layers and give the company a better incentive to earn most of its keep the hard way next time.
Longtime Fool contributor Rick Munarriz remembers A-ha's 1980s hit "The Sun Always Shines on TV." He does not own any shares mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks a day early.
